Bank of Canada Officials Unsure Momentum Had Staying Power, Minutes Say

By Paul Vieira

OTTAWA--Senior Bank of Canada officials were unsure whether an uptick in growth had staying power while also mulling the need for a rate hike due to a re-escalation of hostilities in the Middle East, according to minutes published Wednesday.

The minutes cover deliberations that began eight days ahead of the central bank's July 15 decision to keep its policy interest rate unchanged at 2.25%. At that time, Gov. Tiff Macklem presented what he called a positive outlook for the Canadian economy, as businesses adapted to trade uncertainty and energy prices eased following an interim agreement between the U.S. and Iran.

Since July 15, the U.S. and Iran conflict has intensified, with crude oil prices up sharply Wednesday after Iran launched a surprise missile attack on U.S. forces in Jordan. The price for a barrel of U.S. crude is nearly 7% higher relative to July 15, or when Canada's central bank issued its rate decision.

Furthermore, President Trump threatened last week to impose a 50% tariff on certain Canadian imports as soon as Aug. 19, in response to what Washington deems discriminatory treatment by Canada of U.S. automobiles, alcohol and dairy products. That has cast doubt on Canada's efforts to reach an agreement with the U.S. on relief from existing hefty tariffs targeting key industrial sectors like metals and motor vehicles.

The minutes indicate that officials recognized that the possibility of U.S. tariffs "was an ever-present downside risk to growth." Still, members agreed that growth would accelerate in the second quarter, to 2.5% annualized after a slight decline in the previous three-month period, and continue to strengthen in 2027 and 2028.

Doubts remained, however. "There was a range of views among governing-council members about the sustainability of the rebound beyond the near term," according to the minutes. "Members agreed they would need to monitor the data closely for signs that growth was broadening as projected."

Officials fretted that growth might not materialize as forecast because of trepidation among firms, weaker foreign demand, a continued slump in housing activity and a slowdown in consumer spending, according to the minutes.

Officials also expressed concern about the inflation outlook. The renewal of strikes near the Strait of Hormuz "underlined that upside risks to inflation remained," the minutes said. "If oil prices increased and were to stay higher, spillovers to other prices could increase, raising the risk that inflation would broaden. Such a scenario would likely require a monetary policy response."

Senior officials also discussed inflation expectations. Inflation eased in June to 2.8% after reaching 3.2% in May. Policymakers noted that near-term inflation expectations had fluctuated alongside changes in gasoline prices, according to the minutes. "Some members were concerned about signs of upward drift in medium-term inflation expectations, but all agreed longer-term inflation expectations remained well anchored," the minutes added.

Most economists have forecast no change in the Bank of Canada's policy rate for the remainder of 2026, because elevated levels of spare capacity are limiting firms' ability to raise prices. Some economists say the threat of new U.S. tariffs has reinforced this view.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

July 29, 2026 13:45 ET (17:45 GMT)