Bank of Canada Governor Tiff Macklem is increasingly finding his hands tied by fiscal and monetary policy decisions south of the border even as he struggles to keep inflation under control north of the 49th parallel.In a speech to the Canadian Club in Toronto on Friday, the governor described what he termed “a tough phase of the monetary cycle” — with the economy caught in a bind between higher interest rates and lingering impacts from higher inflation.And despite the squeeze from higher items such as housing and mortgage rates, Macklem said it’s “still too early” to talk about cutting interest rates. “I know it is tempting to rush ahead to that discussion,” he said. “But… until we see evidence that we are clearly on a path back to 2% inflation, I expect Governing Council will continue to debate whether monetary policy is restrictive enough and how long it needs to remain restrictive to restore price stability.”.It comes after the US Federal Reserve on Wednesday kept its own key interest rate flat at 5.4%, slightly ahead of Canada’s benchmark of 5%. Both are at the highest levels in more than two decades.More significant, however, were comments from chairman Jerome Powell that the US equivalent plans to start making at least three quarter-point cuts starting next year, possibly as soon as March.Like Canada, the US is hoping to maintain an inflation target of 2% which is presently running at 3.1% in November, equal to Canada’s.But if the US were to start cutting — like it says it will — that would put pressure on Canada to do the same. Or risk a higher Canadian dollar that would crimp exports and threaten jobs. That’s because foreign investors tend to flock to currencies with higher interest yields..Indeed, that’s exactly what happened after the federal reserve announcement.Accordingly, the Canadian dollar has gained two full cents against its US counterpart and has hit a four-month high amid broad US dollar weakness since the Fed announcement.On the bright side, however, it would also help tame inflation by making prices for imported goods — such as food — cheaper. It also makes things such as sun vacations and travel cheaper.In his speech, Macklem said food inflation remains stubbornly high although prices for items such as shoes and clothing have fallen below his 2% target. Shelter — due to higher interest rates — has risen about 7% while things such as cleaning supplies and personal care items have climbed about 4.5%.Although each seems mundane, those three items account for about half of the consumer price basket, he added.“That’s hurting everyone—especially lower-income Canadians,” he said.