Avoiding US-style Political Pressure? How We Can Strengthen the Bank of Canada’s Independence

November 25, 2025 – As political pressure intensifies on the US Federal Reserve, a new C.D. Howe Institute report warns that Canada must not assume the Bank of Canada’s independence is secure. Ottawa, it says, should act now to safeguard the Bank from political influence and ensure it can continue delivering low and stable inflation.

In “Don’t Take It for Granted: Strengthening the Bank of Canada’s Independence,” authors Steve Ambler, Thorsten Koeppl, and Jeremy Kronick argue that central bank independence has become increasingly vulnerable, and that reinforcing it is essential for Canada’s economic stability.

“In Canada, confidence in the Bank of Canada’s commitment to low and stable inflation and the operational independence necessary to achieve that goal helped stabilize expectations post-COVID and eased the return to the 2 percent target,” notes Jeremy Kronick, the C.D. Howe Institute’s Vice-President of Economic Analysis and Strategy.

The report argues that since 2008, the Bank of Canada has faced growing pressure to mix political and fiscal objectives into its mandate. This “mission creep” includes calls to support a green transition, reduce inequality, or pursue maximum employment – goals that, while important, may conflict with monetary stability. At the same time, Ottawa faces pressure to increase spending to improve productivity. However, rising fiscal demands and higher public debt, the authors warn, can increase the temptation to lean on monetary policy to ease financing pressures.

“Storm clouds are on the horizon, especially given the political pressure being applied on the Fed south of the border,” warns Ambler, a Professor of Economics at Université du Québec à Montréal and the C.D. Howe Institute’s David Dodge Chair in Monetary Policy. “Action must be taken here in Canada. A good place to start is with targeted amendments to the Bank of Canada Act.”

The report recommends re-examining the provision that allows the federal government to issue directives to the Bank and outlines options, including its preferred one, which ensures the directive is only used sparingly, while simultaneously making sure the situation is resolved speedily to avoid economic instability. This change will involve the directive being presented publicly in Parliament before being issued to the Bank. The authors also propose changes that will allow the Bank to retain earnings until previous losses are fully recovered, reinforcing its financial and operational stability.

“Our previous report highlights the decades-long success of Canada’s flexible inflation targeting framework,” said Thorsten Koeppl, Professor at Queen’s University and Scholar in Financial Services and Monetary Policy at the C.D. Howe Institute. “We should be careful not to take for granted the independence that has allowed this framework to operate effectively and deliver strong economic outcomes for households and businesses.”

Read the Full Report

For more information contact: Jeremy Kronick, Vice-President, Economic Analysis and Strategy, and Director of the Centre on Financial and Monetary Policy at the C.D. Howe Institute; Steve Ambler, Fellow-in-Residence and David Dodge Chair in Monetary Policy, C.D. Howe Institute; Thorsten Koeppl, Fellow-in-Residence and Scholar in Financial Services and Monetary Policy, C.D. Howe Institute; and Raquel Schneider, Communications Officer, C.D. Howe Institute, 647-805-3918, rschneider@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

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