Bank of Canada policymakers see Fed independence threats adding to global turmoil

​The Bank of Canada's Governing Council members said threats to the independence of the U.S. Federal Reserve had added to the turbulence and uncertainty in the world, according to ‌the summary of deliberations at their January meeting released on Wednesday.

"Recent geopolitical events - including in Venezuela, Iran and Greenland - and threats to the independence of the Federal Reserve had made the world more turbulent and caused a resurgence in uncertainty," the summary read. The deliberations ‌were part of discussions held by the central bank's seven-member Governing Council before making their monetary policy decision on January ‌28. This was before President Donald Trump chose former Federal Reserve Governor Kevin Warsh to head the U.S. central bank after current Chair Jerome Powell's term ends in May. Trump has repeatedly criticized Powell, demanding that he cut interest rates. Bank of Canada Governor Tiff Macklem later welcomed the nomination of Warsh, saying ⁠he had ​a deep knowledge of ⁠financial markets and the international monetary system.

In the minutes, Governing Council members said U.S. trade policy was being increasingly used for geopolitical aims rather than economic ⁠goals and this had become more unpredictable. "Escalating tensions could lead to disruptions in global supply chains and could weigh on economic activity, posing ​both upside and downside risks to inflation," it added.

The BoC held its policy rate at 2.25% last month ⁠and Macklem said that there was a high level of trade uncertainty due to a raft of factors which made it difficult to predict when and how ⁠rates ​might next change. The rate-setting team indicated the prevailing uncertainty, which had no historical precedent, made it difficult to assign weights and probabilities to the various risks surrounding the outlook on the economy and inflation.

They agreed it was difficult to ⁠predict the timing and direction of the next change in the policy rate, but noted that it was on the stimulative ⁠side of the BoC's estimated ⁠range for the neutral rate. "Members agreed that they would need to maintain optionality in setting monetary policy," the deliberations said.

The members discussed the upcoming United States-Mexico-Canada review of the free trade ‌pact and assessed that ‌it posed a downside risk to economic growth.