05:21 PM EST, 02/06/2025 (MT Newswires) -- In a virtual speech entitled 'Structural change, supply shocks and hard choices', Bank of Canada Governor, Tiff Macklem, on Thursday said: "As 2025 begins, we are facing new uncertainty with a shift in policy direction in the United States. President Donald Trump's threats of new tariffs are already affecting business and household confidence, particularly in Canada and Mexico. The longer this uncertainty persists, the more it will weigh on economic activity in our countries.

"If significant broad-based tariffs are indeed imposed, they will test the resilience of our economies in the short run and reduce long-run prosperity. Tariffs mean economies work less efficiently. There will be less investment and lower productivity. That means our countries will produce less and earn less. Monetary policy can't change that.

"What monetary policy can do is help with the short-run adjustment. But even here, monetary policy has to strike a balance. Significant, broad-based tariffs will sharply reduce demand for our exports. At the same time, a weaker exchange rate, retaliatory tariffs and supply chain disruptions will raise import prices, putting upward pressure on inflation.

"With a single instrument, our policy interest rate-, entral banks can't lean against weaker output and higher inflation at the same time. So we will need to carefully assess the downward pressure on inflation from weaker economic activity, and weigh that against the upward pressures from higher input prices and supply chain disruptions.

"Other structural headwinds pose similar challenges for monetary policy. They'll impact both demand and supply, slowing growth while adding cost. Monetary policy cannot address these headwinds directly or offset their economic consequences.

"In a world with more structural change and more negative supply shocks, central banks will be faced with harder choices. And harder choices bring risks of public disappointment and frustration. We will face criticism about our decisions -- and about how well monetary policy is seen to have worked when confronted with forces that are mostly out of our hands. We will be called ineffective or criticized for not doing enough. And some will challenge our independence."