{"id":72720,"date":"2026-04-28T10:00:32","date_gmt":"2026-04-28T10:00:32","guid":{"rendered":"https:\/\/www.pantheregroup.com\/2026\/04\/28\/heres-what-tiff-macklem-and-kevin-warsh-get-wrong-about-productivity-and-interest-rates-says-desjardins\/"},"modified":"2026-04-28T10:00:32","modified_gmt":"2026-04-28T10:00:32","slug":"heres-what-tiff-macklem-and-kevin-warsh-get-wrong-about-productivity-and-interest-rates-says-desjardins","status":"publish","type":"post","link":"https:\/\/www.pantheregroup.com\/2026\/04\/28\/heres-what-tiff-macklem-and-kevin-warsh-get-wrong-about-productivity-and-interest-rates-says-desjardins\/","title":{"rendered":"Here&#039;s what Tiff Macklem and Kevin Warsh get wrong about productivity and interest rates, says Desjardins"},"content":{"rendered":"<p> \n<br \/><br \/>\n<iframe loading=\"lazy\" title=\"Bank of Canada likely to stay put for now: Paul Beaudry\" width=\"1080\" height=\"608\" src=\"https:\/\/www.youtube.com\/embed\/CuiOPsMLtI8?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><br \/>\n<\/iframe><\/p>\n<p> Bank of Canada<\/p>\n<p>                         governor <\/p>\n<p>                        Tiff Macklem<\/p>\n<p>                         and United States <\/p>\n<p>                        Federal Reserve<\/p>\n<p>                         chair nominee <\/p>\n<p>                        Kevin Warsh<\/p>\n<p>                         are misinterpreting the effect of productivity on <\/p>\n<p>                        the economy<\/p>\n<p>                         and what it could mean for <\/p>\n<p>                        interest rates<\/p>\n<p>                        , says a Desjardins Group economist. <\/p>\n<p> \u201cThe problem that both of them make is that they are tying just one variable, which is the potential of the economy, to where interest rates should be set,\u201d Royce Mendes, managing director and head of macro strategy at <\/p>\n<p>                        Desjardins Group<\/p>\n<p>                        , said. <\/p>\n<p> That misinterpretation is leading them to potentially make mistaken estimates of the neutral rate and, consequently, decisions around interest rates. Canada\u2019s neutral rate, which is calibrated to neither stimulate nor depress economic growth, ranges from 2.25 per cent to 3.25 per cent. <\/p>\n<p> Warsh, in front of a U.S. Senate confirmation hearing last week, said an artificial-intelligence-led productivity boom won\u2019t lead to higher inflation, thereby leaving room to cut the Fed\u2019s benchmark interest rate. <\/p>\n<p> However, Mendes, in a note on April 22, said economic theory has established that <\/p>\n<p>                        productivity increases<\/p>\n<p>                         when capital spending rises, pulling along consumers who end up saving less. Increased spending spurs demand and inflation typically comes along for the ride. <\/p>\n<p> Macklem, during a speech earlier this year, said lower productivity leads to weak growth, so cutting interest rates can risk \u201cstoking future inflation\u201d and delaying \u201cneeded structural change.\u201d <\/p>\n<p> But Mendes said a lower productivity scenario or a lower potential output scenario are not sufficient reasons to expect lower interest rates to stoke inflation. He said the problem regarding rate setting is which version of the neutral rate is being used \u2014 at least in today\u2019s environment. <\/p>\n<p> The benchmark lending rate is currently 2.25 per cent, and he said policymakers have made a few references to their belief that rates are in stimulative territory. <\/p>\n<p> The Bank of Canada will release its annual estimate of the neutral rate along with its latest interest rate decision on Wednesday. <\/p>\n<p> Mendes isn\u2019t expecting any changes to the <\/p>\n<p>                        central bank\u2019s<\/p>\n<p>                         neutral rate policy, but said it should implement a different regimen to determine what is the appropriate neutral rate as well as what is stimulative and what isn\u2019t. <\/p>\n<p> \u201cWhat they forecast is a very, very long-term concept of neutral, which is almost useless for calibrating where policy should be today because there are two ways to measure neutral: a short-run neutral and a long-run neutral,\u201d he said. <\/p>\n<p> Because policymakers take a long-term view of neutral, he said they \u201clook through\u201d seismic economic events such as the tariff war with the U.S. and its effects on business investments and productivity and a contraction in population growth. <\/p>\n<p> \u201cIf you look at those two big factors, population growth and productivity growth, both of them are extremely weak in the current environment, and both would suggest that the short-term neutral rate is below whatever the estimate of the long-term neutral rate is,\u201d he said, adding that a\u00a0lower neutral rate could lead to lower interest rates. <\/p>\n<ul class=\"related_links\">\n<li>Bank of Canada expected to hold rates Wednesday, but economists split on whether cuts or hikes loom<\/li>\n<li>Canada&#8217;s finances are the best in the G7, but that&#8217;s not saying much<\/li>\n<\/ul>\n<p> Mendes said the war in Iran has added another complication to calculating rates since it has fed rising inflation expectations, putting the Bank of Canada in a tough position between balancing the needs of the economy and keeping inflation under control. <\/p>\n<p> He said central bankers shouldn\u2019t rush into anything when they meet on Wednesday. <\/p>\n<p> \u201cI will tell you that right before the conflict broke out in the Middle East, we were very close to changing our call for the Bank of Canada to cut rates,\u201d he said. \u201cThat derailed our plans because of this energy price shock.\u201d <\/p>\n<p> <em>\u2022 Email: gmvsuhanic@postmedia.com <\/em> <\/p>\n<p><iframe loading=\"lazy\" title=\"Canada doesn&#039;t have the leverage over U.S. it thinks\" width=\"1080\" height=\"608\" src=\"https:\/\/www.youtube.com\/embed\/XS192oFk6uE?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><br \/>\n<\/iframe><br \/>\n<br \/>\n<br \/>Here&#039;s what Tiff Macklem and Kevin Warsh get wrong about productivity and interest rates, says Desjardins<\/a><br \/>\n<br \/>2026-04-28 10:00:32<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Bank of Canada governor Tiff Macklem and United States Federal Reserve chair nominee Kevin Warsh are misinterpreting the effect of productivity on the economy and what it could mean for&#8230;<\/p>\n","protected":false},"author":2,"featured_media":72721,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[31],"tags":[],"class_list":["post-72720","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy"],"_links":{"self":[{"href":"https:\/\/www.pantheregroup.com\/api\/wp\/v2\/posts\/72720","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.pantheregroup.com\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.pantheregroup.com\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.pantheregroup.com\/api\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.pantheregroup.com\/api\/wp\/v2\/comments?post=72720"}],"version-history":[{"count":0,"href":"https:\/\/www.pantheregroup.com\/api\/wp\/v2\/posts\/72720\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.pantheregroup.com\/api\/wp\/v2\/media\/72721"}],"wp:attachment":[{"href":"https:\/\/www.pantheregroup.com\/api\/wp\/v2\/media?parent=72720"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.pantheregroup.com\/api\/wp\/v2\/categories?post=72720"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.pantheregroup.com\/api\/wp\/v2\/tags?post=72720"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}