Bank of Canada head expresses concern about Trump's Fed actions

By Promit Mukherjee and David Ljunggren

OTTAWA, Sept 23 (Reuters) - Bank of Canada Governor Tiff Macklem on Tuesday expressed concern about President Donald Trump's attempts to pressure the U.S. Federal Reserve, saying his actions had started to hit financial markets.

In his first observations on Trump's efforts to influence Fed decision making, Macklem said the impact could be seen on the U.S. dollar.

In the last few months, Trump has cranked up his demands for a rate cut, tried to remove one of the Fed's governors and repeatedly insisted that Chair Jerome Powell resign at a time when the U.S. president's trade actions have disrupted the global trade order.

"Why I'm talking about it is that it's starting to have consequences in financial markets," Macklem said when asked by reporters about the timing of his comments.

"I do think you are starting to see some impacts, and in that sense, it's time to talk about it."

Earlier in the day, Macklem told the Saskatoon Chamber of Commerce that Trump's attempts to influence the Federal Reserve were raising questions about the continued independence of U.S. monetary policy.

He also noted how the U.S. dollar was suffering due to Trump's actions and accompanying global uncertainty.

"The question now is whether U.S. dominance in global financial flows will ebb as the United States pulls back from trade and runs large fiscal deficits. The recent performance of the U.S. dollar may be telling us something," Macklem said.

The greenback, he noted, was losing its appeal, falling almost 10% since Trump unleashed a barrage of tariffs globally in April. This, Macklem said, had called the dollar's safe-haven role into question.

"For now, the greenback remains dominant, and — without a clear alternative — I suspect it will remain the global reserve currency for the foreseeable future. But for many, its value as a hedge in times of stress has been dented," he said.

He later commended Fed Chair Jerome Powell for "doing a very good job under very trying circumstances," but stressed the need for the Fed to remain free of political pressure.

"Central banks that have operational independence for monetary policy do a better job at delivering price stability for their citizens," he said.

CANADA RAMIFICATIONS

Macklem said the shifting trade equation with the U.S. had immense ramifications for Canada.

"We can't afford to wait this out," he said, adding that Canadian businesses as well as political and economic leaders would need to chart a new course.

"We should have been making these changes 15 years ago. But the next best time is now," he said.

Canada has long suffered from anemic productivity, which economists and businesses say is helping fuel inflation.

Canada's economy will work less efficiently, costs will go up and incomes will shrink due to increased trade friction with the U.S., he said, but noted monetary policy would not be able to soften these impacts.

"Monetary policy cannot undo the efficiency costs of U.S. tariffs... nor can counter-cyclical fiscal stimulus," he said.