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Ian Pollick: Good morning and welcome to the first episode of Curve Your Enthusiasm of 2026. Listen, we’re going to start the new year off with a banger episode. I’m extremely excited for today. I’m joined by Ali Jaffrey from our Economics department and our guest today is Jean Boivin. Jean is the head of BlackRock Investment Institute globally. If that name sounds familiar to you Canadians, it should be. ⁓ Jean was deputy governor at the Bank of Canada. He was deputy finance minister at Finance Canada and overall just a good guy. Jean.

Welcome to the show. Thank you so much for joining us today.

Jean Boivin: Thank you so much. It’s great to be here. And that’s an amazing title for this show.

Ian Pollick: We’ve heard that a bunch. Listen, we want to get right into it because we have so much ground to cover. I think what we should do is maybe you could give us your outlook for 2026 and some of the core tenants that you think investors should be thinking.

Jean Boivin: Let me give you the core framing of the Outlook. I mean, there’s a lot to talk about in Outlook, Let me get to the essence of it, and then we can unpack this. But I would say a couple of key highlights. The first one is, maybe that’s kind of obvious by now. I don’t know how much, but we’re not in a cyclical environment globally. So there’s been a bit of our pet peeves for the last few years.

We are in the middle of a transformation globally. It’s driven by mega forces and we’re structurally adjusting to that. And that I think means that all of the typical macro frame we’re used to apply to think about markets and asset allocation don’t necessarily apply here. So it’s a structural adjustment. It’s driven by mega force. AI is, you know, mega means big, big forces, but maybe we need another word, another superlative for AI, because it’s at the moment even bigger than the other forces we have in mind. And AI trumps even the traditional macro environment. We’ve seen that in 2025. At that point last year, everybody was talking about the massive policy uncertainty out of the US that would be through transmission mechanism of uncertainty, depressed investment, and would lead to slowdown. Well, even though what’s consensus hasn’t really happened, at least in the US. And the reason why is not because we didn’t get the uncertainty, we massively got it. But instead, AI is really trumping all of this at the same time. So a lot of upsetting forces here. We are also, when we look at 2026 and beyond, we are in an environment driven by structural forces, which means that the set of outcomes we might be envisioning over the next few years is much wider than I think at any point over the last 40 years. And a lot of the challenge for investors is that the big questions are not really what’s going to happen in the near term, where we’re heading in the next five years is that are the bigger questions, which is kind of flipping the typical investment paradigm on its head. Typically, we think the long term things mean revert to a long term mean. And what we need to navigate is the short term.

I think we have more certainty about the short term than we have about the long term now. So strategic asset allocation needs to be revamped or taught more deeply than it used to. But in the near term, the world cannot change that quickly. There’s a lot of drama around big questions, people jumping to conclusions. I guess our advice going into 2026 is to push back a bit on the drama. Keep an eye because things eventually might change very materially, but it cannot change overnight. So as a result, we’re going into 2026 with a pretty bullish view on markets. We think that there are very powerful structural forces, AI, which have room to continue. And we’ll need to be ready to pivot, of course, as we go further. But we think this is, for now, on pretty solid ground. So let me leave it there for now, and then I’m sure that triggers some reaction.

Ali Jaffery: Just picking up on that, John. So you have a range of macro forces you laid out and we’re getting questions from clients about the role of AI, monetary policy, shifts in immigration, but also still getting a lot of inquiry about trade policy, which is unsettled. And I take it from what you just said that you think that the force of AI likely outpowers that, but is there any part when you try to disentangle these forces that makes you think, you know, maybe the trade shock itself wasn’t that large? And are you a bit surprised about, you know, the strength of US consumption and domestic demand more generally? Certainly, you know, the wealth channel is probably helping that a little bit. But there’s some underlying resilience perhaps in the US economy, despite big shifts in trade policy and the emergence of some of these structural shocks.

Jean Boivin: Yeah, think it’s a combination of the idea that the world cannot change quickly, which means that we haven’t fully seen the impact of those tariffs yet. That’s, I would say, one point on one side. And then a combination of that with the fact that maybe tariffs are not as dramatic as many of us economists would have started from, right, given all the advantage of free trade and so on as a starting point for many of us. So I think it’s two things at the same time. And I would say we’ve seen the tariffs impact already, right? If you were identifying purely the tariff shocks and its impact on the economy in 2025, there’s a significant impact on inflation that has been happening.

It has also created some pressure on profit margins for some key companies, which have absorbed that in the first instance as well. So there has been an impact. It has been masked by pretty powerful forces, otherwise, wealth effect that you mentioned. So I think this is certainly part of it, which has been driven by AI being a real mega-force story. So the first part is this is not maybe as big and there’s been also, fortuitously, pretty big offsetting forces happening. But I think the impact is real. But it might not be as big as we thought. And on that I would say, you know, it’s all about framing, And while it’s sand into the engines of the global economy, frictions and so on, and that’s going to have some long-term cost to this.

There’s a framing that when you think of it as a tax, we can think of more public policy tools. And once you start thinking about this, Japan put in place a VAT back in 2013, a very significant increase in their value added tax that created distortion in quarterly GDP that were pretty meaningful, but it didn’t derail the whole Japanese story.

I think maybe the framing matters and it is long term will reduce the potential of growth for the global economy. Maybe you want to think about Brexit as an example where, you know, over time you see the costs accumulating. But in terms of impact and dramatic impact, it’s probably not as big as some might have expected a year ago.

Ali Jaffery: Right. now, investors, though, they’re trying to sort out some of the near-term signals as well. And because the labor market may be showing greater signs of strain from tariffs and uncertainty than what you see in aggregate activity figures. does the law still hold? Is that conventional wisdom that, you know, the labor market is a better future indicator for the U.S. economy still a reasonable guide? Or maybe should we be taking more, putting more weight on GDP? Or perhaps we’re in a new productivity regime. How do you kind of sort through those signals, understanding of course there are supply shocks and changes in immigration policy affecting labor market, but when you kind of try to boil down these two indicators, where should investors be placing a bit more weight?

Jean Boivin: That is actually like fundamental and core to our view and understanding of the current environment, right? So there are two unusual forces at play in the labor market that are structural in nature, right? So I started by saying, this is not about a cyclical story. This is a structural adjustment. And that directly has implication on how we think about the labor market. So I don’t think we should approach labor market data coming out with a cyclical lens and trying to gauge about how much of a cyclical boost or weakness are we seeing right now. Instead, I think we are seeing two big things. The first one is there’s a big demographic story, the immigration slash demographic story that has been going to a turning point over the last few years. It’s a labor supply story that, you know, has been slow moving and fully predictable, but it happens to really become binding, you know, over the last couple of years.

So the labor market is being limited by the supply side. I think we just need to recalibrate like a breakeven payroll number in the US on a monthly basis, instead of being like a hundred thousand job or more, it’s probably more like 40,000 job. And that’s like just like a normal breakeven number for the labor market. So if you don’t acknowledge this, then you see 40,000 and you interpret relative to 100,000 normal job, then you get the wrong read on the economy. It’s not as weak as you think. It’s not cyclically weak as you would think. That’s the first kind of unusual factor going on, and it’s massive. The second, and immigration, by the way, is on top of this. We have the aging demographic, baby boomers growing into retirement, but you also have the immigration massive influx for more than four millions. But last few years, that has been reverting this year. And again, changes how you interpret the cyclical labor market. The second piece is AI. We don’t know yet. I think we have to be humble collectively and it’s very appealing to tell a story about how AI is raising productivity and so we don’t know yet. And I think we’re in a no hire, no fire situation, not so much because of the trade uncertainty, my view, but because of the AI uncertainty. I don’t know about you at CIBC and other areas. But here, we’re all experimenting with AI. We can see some real potential. Have we made a decision about how we’re to staff ourselves given that? No. We’re waiting. I think we haven’t got to that point where we say we need to reshape teams. And this is not for us yet happening. But some are doing this. So I think there’s a bit of a productivity story where that’s going to create a wage between growth and the labor market. And again, should guard us again, to bring too much weaknesses if we see low payroll numbers. So that’s our core view and I guess to really answer your question, I think in this environment, we might want to put more weight on activity measures, not only GDP, but like activity measures, whatever they are, as opposed to the labor market, because it’s more distorted than usual.

Ian Pollick: So let me just jump in here for a second because I think there’s a couple of things you said that stand out. if this is true that this is a structural change, then there’s obviously a read through into central bank reaction functions. You make the point in your year ahead outlook with AI, for example, that the timing between revenue and expenditures is so big that the system becomes much more leveraged. And so if it’s true that the essence of volatility is just a leverage coupled with a surprise, you know, how should policymakers incorporate that into the way they think about the world? And so what that really does is it brings up that lean versus clean argument that you made when you were at the Bank of Canada. Just for our listeners who may not be familiar with it, know, Jean had this idea and the question was, when you have imbalances in the economy, whether it’s the financial economy or the real economy, if they have a spillover impact that’s large enough and you don’t have, for example, macro prudential regulation that can contain it, then the question is, does the central bank lean into it or clean it up afterwards? Now, we were used to this in the parlance of the housing market for a very long time. Obviously, that didn’t really happen. But AI is a different story. So how do you think this impacts central banks decisions?

Jean Boivin: I mean, this is a great question and brings me back to things I haven’t thought in those terms for some time. So I really appreciate you bring that up. I would say a couple of things. It’s related to the whole like even bubble talk around the AI. And if we think that there are financial exuberance that are generated by the AI enthusiasm.

What should central bank do about this and should they lean against it or just let it go and be ready to clean when things go south? So that was the debate back then that was post 2008. I think you’re right to say that this is relevant question now. We just observed though that this is nowhere near to be even a consideration because just purely dealing with inflation and the trade-off that the inflation simple mandate creates with managing the debt for the US. It’s already pretty contentious. We see all the pressure that the Fed is going through. So I think just like in terms of managing purely inflation, it’s already pretty challenging. And if anything, there’s pressure to kind of be easier than otherwise, even just to deal with inflation. Now, if you add on top of this financial stability consideration and the fact that there might be an argument to lean, would make this tension even worse, right? So it’s going to be difficult for the Fed to raise rates to deal with inflation given the political pressure. And if they start to make arguments that they are leaning against potential bubbles on AI, I have a hard time seeing how that’s going to play out politically, right? I don’t have a hard time, but I can see that would be very difficult. So I think this is a very, very relevant question, but I want to observe that it’s nowhere near to even be on the table as a consideration given the current tensions that we’re facing. But the point would be that might be even an argument for the Fed to be even more awkward than they currently are. I don’t see that happening. I don’t see that happening. So I think we are going to be no matter if it’s the right thing or not, that leaves up more with a cleaning, you know, dynamic year.

Now the question is, can they do what’s needed to really keep inflation under control? We believe that inflation is going to actually be overshooting and won’t be fully on target. And then as a result, I think they won’t be leaning at all into what could be a bubble. Last thing I would say, though, is we happen to believe that on the AI itself that, it’s very difficult to call a bubble, right? It’s very, very difficult to call a but we will not be ready to say we need to lean against that because I think there’s a real potential that this is so transformative that we might justify the massive capital spending we’re seeing in that space. We might be able to justify it. It’s too early to conclude that it’s not. And so if I were sitting in the central bank right now and if I was even thinking that leaning was possible, despite the political pressure. I’m not sure I would be making this argument just yet.

Ali Jaffery: So Jean, put you back in the chair of a central banker and let’s talk kind of a bit more about that. Let’s unpack that more. Talking about what’s on the table right now for the Fed. So, you you’re arguing that there some structural shocks. There’s some shift to AI in particular. That’s going to probably generate some increased demand in the short run. But over time, that might also expand the supply side of the economy as well. But then at the same time, there’s other important forces happening, US inflation, shelter costs have come down and likely will come down a lot. They have a huge weight in inflation. And we may see shifts again in tariff policy that really result in what so far has been a price level shock and core goods becoming maybe a bit less in the future. So let’s say you’re the Fed, you have all these things going on. Let’s put Fed independence to the side for a moment, right? How do you set monetary policy over the next year, year and a half?

Jean Boivin: Yeah, so I think if you were, if you had been in a coma, don’t want to wish anything of that sort, but like if you had been like not paying attention to what’s going on for the last couple of years as an economist, and I don’t know if you agree with that, but you were just starting to pay attention to what where we are right now in the US. I’m not sure that if you didn’t know anything more, but just the data.

I’m not sure that you would be like I have a high conviction inclination to lower rates from here. Right. So I think I think there’s already kind of a bit of a bias starting point that is suggesting something that is happening maybe. And moreover, going back to your point about the labor market.

A lot of the argument to be easier right now has to do with some concerns about the labor market. But if the labor market is really going through a structural transformation and it’s not really cyclical weaknesses, that argument is not as strong. you put all of that together. Not obvious that there should be a strong easing bias to me at this stage. So that would be my starting observation. Beyond that, I believe AI has the promise down the road maybe to increase potential growth and maybe become deflationary, but it’s going to be inflationary first. We need to build it first. The CAPEX build out is unprecedented. I’m trying to find a new word now because unprecedented is overused and doesn’t really capture it. Even the Industrial Revolution or any of the big revolution didn’t have the speed of deployment of investment that we intend to see now by 2030. So that is a pressure on the demand side of the economy.

I mean, you don’t get all these resources being spent to build out AI without like putting pressure, inflation on the economy. And moreover, energy is a big part of that story. Energy is gonna be the limiting factor on the AI side of things, limiting means we’re gonna see pressure on energy. So I think I see inflation as being, you know, the upside being more of a story than the downside on inflation. From here, we’re in a world where we think it’s more like 3 than 2%. That is not even accounting for what’s playing out in the system in terms of tariffs and the labor market that is structurally tight despite the weakness. I think it’s still structurally tight. So services inflation, I think, doesn’t necessarily continue to ease that much from here.

I mean, I would be in this environment if it was purely like a public pure inflation exercise, managing inflation. I think I would be on the wait and see right now with probably a bias to hide from here. That said, it doesn’t really matter what I think, right? I mean, my role is to think about like how we position portfolio and help our clients. And we need to think about what they’re to do. And we think they’re going to be probably still easing into 2026, maybe once or twice. So what I just said is not my forecast of what’s going to happen. I just want to make that clear.

Ali Jaffery: So, John, why does the Fed have what appears to be, and Ian and have been talking about this ad nauseum for a long time, and we were surprised too in the same camp as you throughout 2025, not thinking that the Fed really had a strong case to ease as much as it did, given that inflation was sticky. But why did they have a bias towards the labor mandate despite having core inflation still pretty sticky and has been sticky for a long time?

Jean Boivin: I mean, I think there is a rationale around the fact that, you know, I mean, you have this idea of stall speed, right? And typically, historically, when the labor market starts, you kind of get to these numbers that are close to zero payroll growth or slightly above, it doesn’t bounce back up. It tends to go, continue to turn down, right? So it does have a…if you apply a cyclical lens to the labor market, you can see it as approaching kind of a top of a cycle. And you could have worries about this turning over and you want to be forward looking, preemptive. And I think that’s where the case for being a bit more concerned about the labor market and justifying easing comes from. My view, though, is that the labor market is going through a non-usual dynamic that has nothing to do mostly with cyclical factors. So I kind of reject that. But if that’s your view that the labor market is what we’re seeing is a cyclical dynamic, it would suggest some weakening that could get worse. And I think that was the frame that some of the people sitting at the Fed were using late in the summer. I have to say that starting in September, the streak of data we’ve seen was weaker on the labor market side than we expected despite our view on the structural side. So there was a sense of maybe more weakness on the demand side than we expected and giving some justification to those worries.

So that’s how I would reconcile the alternative view. But if I had to take a side, then I think it’s still towards I’m more worried about the upside inflation than the downside.

Ian Pollick: OK, so let me ask you this. And let’s just borrow on your example of, know, we were out of the planet Earth for a little bit. We just landed and we looked at the pricing and global short ends. OK, what I would see is cuts price for the United States, hikes price for Canada, hikes price for New Zealand, hikes price for Australia, hikes price for Europe in 2026. And so you’re very much in this environment where, rightly or wrongly, you have this idea that because certain central banks were early cutters, therefore they have to be early hikers, which really pays no tribute to the relative size of output gaps, pays no tribute to individual trade restrictions. And so I guess the question I have for you is, you know, is this a narrative that you think continues or is there going to be a stark reality where we start to reconverge across policy pricing, depending on what the Fed is doing?

Jean Boivin: I think we’re going to reconverge towards some policy pricing that is more aligned. And to me, that narrowing of the gap will come, I think, from the point at which we’re going to realize that the Fed, the US, will not cut much more beyond where we are right now. So I think this is…And then maybe we’re going to start to see high being priced or being on the table again over the course of the next year or so. So I think I think there is a disconnect. You’re absolutely right right now. I think that disconnect is currently driven by. As I said, it’s not purely about the macro picture in the US, because it’s a pretty strong picture, but it’s I think investors are putting some weights on the Fed deviating from a pure inflation story for now for various reasons, maybe because they are overly concerned about the labor market, or maybe because the political pressure is what it is, right? And they’re going to navigate it, not necessarily abandon their framework and their mandate, but like it’s going to tilt them. The bar for them to hike is higher than elsewhere or to sound outkish, but that’s going to last for some time, right? I mean, at some point, like I don’t think that can last forever. So I think we’re going to get to a point where market might be pricing out those cuts. We’re going to see to a more kind of two balance, you know, balance view on the rate path from here, maybe eventually some high being priced and then the disconnect you see with other central banks. This is how I think it gets reduced from here, but it’s very difficult to envision like the Fed and the US going in one direction and the rest of the world going in the other.

Ian Pollick: Yeah, like that divergence, particularly within the advanced economies and particularly within the dollar block itself, just seems relatively aggressive. And so, you know, I know all of our listeners want me to ask this question. So I’m going to ask the question, what do think the Bank of does this year? You know, we’ve heard a signaling that interest rates are in the right spot. We know there’s some pre-existing risks, some new risks to the economy. What would your expectation be for the bank?

Jean Boivin: That’s a good question. I’m going to be disappointing your listener, given you said that there’s high expectations around it. I don’t have, I would say, to be honest, I don’t have a strong conviction on which direction things go from here. So I think it’s a reasonable place to be that we are in a reasonable place right now. I think Canada has actually fared pretty well despite, you know, all of what would have been assumed to be a disaster a year ago. So I think this is very impressive. think global investors will see some relative attractiveness in Canada as a result of this. think there is, in our view, a big story around these mega forces, which AI is one of them, but the energy transition is another big one of them. And I think Canada is both very much in the mix of that. So there’s a very significant infrastructure story, I think, that is playing out globally, but Canada is going to be part of this. So I think these forces are so powerful that I think can create some momentum in Canada. That doesn’t mean we need to hike in this environment, but I think it’s going to be a pretty solid support. I’m not bearish on Canada’s outlook, but I’m not so archaic or so optimistic that I think we need to raise rates at this stage. I think you can tweak rates from here during the course of 2020 depending on what we learn, but the broad story to me is it’s in a place that makes sense overall where rates are.

Ali Jaffery: So, Jean, on Canada, obviously, the big elephant in the room and what everybody’s talking about here is USMCA. And so I want to know your thoughts about how investors should kind of brace for the turbulence that we might see. You some starting shots have already been fired. But, you guys have argued that, you know, it’s difficult to remain neutral in this environment. So vis-a-vis Canada, USMCA, what are your thoughts? And also, how do you assess the government’s response in terms of what you just mentioned, the infrastructure spend out, the defense spending, the broader fiscal policy responses? How do you think that stacks up given the challenges Canada faces?

Jean Boivin: So I think the point about there’s no neutral place to be, I just want to pick on that for 30 seconds, because that’s an important point. This environment that we talked about where the world is transforming, big forces, AI, let’s just unpack that. AI could be the most transformative and the quickest transformation we’ve ever seen. So that could be this.

Maybe the world is pretty much the same in five years as it is right now. So those two things are like on the table right now. They’re very different. The portfolio as an investor you would want to own in the two scenarios is very different. And the portfolio that would be averaging over those two scenario will not be the portfolio you want to own in either of these scenarios. So there’s not really a hiding place here. So our best advice, given what you said, trade negotiation we’re going to see and so on is to fall back on what we think are immutable economic laws. And these immutable economic laws, could come up with the list if you want, but we have two we think are pretty real. One is that global supply chain are very deeply integrated. You cannot just pivot away from this overnight. And we’ve seen these immutable laws in action during the course of 2025, we were of that view and we saw them working, especially after Liberation Day. We saw electronics being pulled out of the China tariffs very quickly. Why? Because the global supply chain cannot change quickly. And so that’s an immutable law. Over time, maybe we can reject things, but it’s going to take time. So that’s one. And then the other massive immutable law for the US is the debt. And what I mean by that is that there’s something they will not be able to ignore, which is that if rates increase too quickly and buy too much, the whole debt arithmetic doesn’t work. And that no matter what your objectives are, no matter where you are, no matter if you take your above everything, you won’t be able to ignore the consequences and those will be political. And so these are two big anchors. So when we think about trade, there’s gonna be a lot of noise, maybe things that will be attempted and so on.

But I think you want to avoid, as an investor, extrapolating some of these things. At the end of the day, and we’ve seen that, people have been talking about, I won’t use that on this podcast, but ⁓ some Mexican food trade. So they’ve been talking about this going forward and walking back on these policies we’ve seen this year.

Our explanation for that is really that these immutable laws are, need to confront them. After Liberation Day, this was about the world where the US was creating uncertainty on those that are financing the US debt. And they quickly realized that they are not forced to own that debt. And we saw a massive move in 30-year yields. And they walked back. So again, that’s another example of immutable laws in action.

For next year, when we see this negotiation, would say we need to pay close attention. There’s going to be change. Some sectors will be affected. It’s good that Canada has a strategy to try to diversify. Although I don’t think we can diversify from the US, but we can add to what we have. We’re going to really diversify our way. So we want to get the best deal with the US possible. There’s going to be noise. But at the end of the day, I don’t think things can change that quickly. So I think.

That means on practice, when the market overreacts or runs with concern on trade, then we would tend to take the other side throughout the course of 2026 until we see more of the lending zone. And there then is going to be more of a sectoral kind of story about, well, there’s going to be some down knock on effect on the sector. Maybe profits will be under pressure for some and so on. But I don’t think we have visibility quite on this.

And I think Canada, at end of the will be in better position than most countries despite everything here.

Ian Pollick: Well, I’d like to pivot a little bit to some broader asset allocation questions because I think, you you spend a lot of time talking about that look for AI, the expenditures related to AI.

But when you take a step back, I think one of the most obvious conclusions or a byproduct of these trade policies is that global excess savers just aren’t redeploying capital the way they used to in various markets. And that’s very true for the United States. And so that imbalance between the required investment and the amount of savings in the system should force real interest rates higher. And indeed, in your outlook, you are minus one unit or whatever scale you use on U.S. treasuries versus, let’s say, MBS.

But globally you do have some cyclical reinforcement coming through less restrictive policy, fiscal policies activated in many parts of the world, and in certain jurisdictions you have deregulation. And so maybe just quickly talk to us about where do government bonds fit in your ideal portfolio?

Jean Boivin: Yeah, you tee that up very well here. So I think the US Treasury story is one where what is abnormal? What is abnormal is not, I don’t subscribe too much to the US dollar losing its status as a reserve currency and all of these things, right? Or even like US treasuries being being re-questioned in portfolios and so on, in a dramatic way. But I think what was abnormal even before 2025 is how little term premium or compensation for long-term duration exposure in US bonds investors were getting. We’ve seen this compression, this reduction in term premium since the 2010s up until recently and that was completely outside of the norm of what has been the case in the US.

So now we’ve seen this year some repricing of that term premium reappearing. I don’t see that as a sign that the US is losing any status. think it’s going back to nobody was talking about the US treasury status in portfolios back in 2010s when they were offering twice as much of a term premium. I think that environment has created more of a wake-up call, I think, of wait a minute, what is abnormal? Here’s our little compensation we’re getting for treasury. So that’s why we think 10 year yields, 30 year yields have room to continue to increase and lead us to be on the weight, you know, longer term U.S. bonds in that context. But this is in the, and it’s minus one. I mean, in our scale that goes up to minus three, it’s minus one because we’ve seen a lot of adjustment over the last few years. That has been a view we’ve been holding since 2021, right? I mean, we’ve been systematically on the weight U.S. treasuries. That was not related to the current administration is related to high debt, inflation, bigger trade-offs, more term premium needs to appear. So that is more room to continue in the same kind of vein as we were saying. Globally, that makes, I think, development bond markets relatively more attractive. So I think we would tend to be a bit more positive on relative basis on European bonds. Then in that context and then Canada also same kind of story there overall. bonds, I think, you overall, you want to be neutral or slightly more careful than on average allocation. So a bit on the weight. That’s mostly a US story. And I think we would relatively prefer other developed markets bonds. And then we tend to like emerging market fixed income in general in hard currency denomination.

Ali Jaffery: So, John, let’s turn back home a little bit again to back to Canada and talk a bit about Canadian inflation. And so the story on Canadian inflation is an underlying inflation. You know, the bank has kind of continuously refining its thoughts about what that means, but the general consensus that it’s a bit above target. And they’re worried about kind of two forces that kind of, know, opposing forces. One is slack in the economy due to trade tensions, obviously which is, you we see that clearly in the data, both activity and the labor market. But then on the other side, they’re worried about these costs of reconfiguring trade, be that importing, you know, importing tariff-induced inflation from the US on the producer side, or just from diversifying trade partners. And they view that latter shock as, you know, a risk of being persistent inflation rather than a price level shock.

I’m a little skeptical of that, but it is what it is. This is how they framed it, and they framed it quite consistently for the last several decisions. So how do you see that assessment, and how do you characterize the risks around Canadian inflation?

Jean Boivin: So I have some sympathy for that framing, is in line with our structural transformation view of the world. So we are transforming because of the geopolitical fragmentation, is another word for trade fragmentation because of the AI build out and transformation and because of the energy transition. All of these things mean two things. I think there are headwinds to potential growth in the near term because what you have currently deployed is not fully aligned with the new world. So you don’t get the same productivity or potentials. You cannot support the same potential growth as a result of this. And moreover,

We need to spend, we need to invest, we need to build, to pivot to this new, to transform toward this new world. And that ⁓ transformation, that spend, that investment is an increased demand. So I said before that AI to us will be inflationary before it’s deflationary. And I think this is a massive story, right? I just want to make that clear for the US. We’re talking about…the AI is this $5 trillion of build out for the US by 2030 that people in the industry are currently intending. That’s not the Canada, I’ll come to Canada, but that’s the quantum we’re talking about. In terms of what it’s going to create in terms of displacement in the macro economy, this is big. It means that the non-AI economy will have to slow 1.5 percentage point slower than it would otherwise do to kind of absorb this build out. And if it doesn’t slow down, inflation will have to be 1.5% at this point higher than otherwise. That brings us to about a third of COVID inflation in the US if it’s not absorbed. So that’s the number I have for the US. But what I’m saying is that this transformation, the spend that comes with it, even like what the government is doing in terms of boosting infrastructure investment and so on, pivoting trades.

That comes with a cost, which in the near term, think, does two things. Reduce the potential of the economy and adds cost to the build out. And so it’s kind of a structural inflation. I don’t know how persistent that is, but I do think that it’s a relevant frame and would lead me to think that there’s a bit more persistent inflation. I think the story for Canada, though, is much more muted than for the US. So I don’t think this is going to be a primary concern, ultimately, but it’s it would lead me to upside on inflation as a result.

Ali Jaffery: I just want to probe on the AI story here. What do you say to the naysayers? The people who say, look, know, survey suggests, you know, firms are still not using this technology. They don’t know what to do. There’s a lot of on the liability sides. And, know, as you, as you, as we talked about earlier, there’s a mismatch between revenues and expenses here. And we don’t know the future of who’s going to survive this. That, yes, there’s a lot written down on what people want to do. And yes, by 2030, this may be a great scenario, right?

Ian Pollick: Most people still use this like a toy, right? Like it’s really not the pump we’re monetizing.

Ali Jaffery: Yeah, so how do you hedge against that kind of risk that this is good but not great?

Jean Boivin: So our conviction here, or conviction, our analysis will lead us to kind of this conviction at this stage, which is that if you look, and we did that in our outlook, if you’re, I don’t know you looked at it, but like we tried to put some numbers on this, but if you look at, I talked about 5 trillion by 2030, this is huge, right? So that’s gonna be the fastest build out. Even the entire internet revolution took like, you know, four times more time to reach the same kind of quantum. So we’re talking about like something that is big. And if you see that you can quickly say, a minute, right now this is only a toy as you said, Ian, and we’re making this crazy investment like the world has never seen before. So of course it leads you to think that this is out of whack and maybe there’s a bubble. We think the benefit could also be unprecedented.

And I don’t think we’ve seen it. So I agree with you that right now we’re using it and it’s very useful to do a trip planning and get information quickly. I’m trying to figure out what to do a Friday night in New York City. And I did use it to get some suggestions. It is useful. But I also see, you know, I think research, research in asset management, research even in central bank. I think this is one of the most probably the most quickly disrupt a piece of this. And we haven’t yet seen that materialized, right? But like we have experimented with this. can see throughout BlackRock how we’re be, we’re starting to use it. And I think that’s gonna be transforming how research is done. That I can see, that’s my space. I can see it and I can connect the dots. Now, when you get to scientific breakthroughs and when you get to kind of drug creation and the value chain that’s gonna come with this.

Jean Boivin: You can start to look at, and it could happen pretty quickly. We’ve seen some element of that happening. The Nobel Prize this year was actually an application of AI to scientific breakthroughs and so on. So this is not science fiction. We already have signs of this. We might be in a world not too quickly, not too distant future, where we’re going to see significant revenue pools being created. And so we’ve tried to do the exercise of, OK, let’s try to add up the industry is looking at the run rate by 2030 of something that’s going to be in the order of 1.5 trillion, run rate per year of new revenues. That’s just looking at the existing line of business. But we think on top of this, you could see completely new pool of revenues because of drug and so on being created. So at the end of the day, it’s not a given. And by the way, I there’s a big thing that’s going to be required for all of this to add up is we’re to have to break out from a 2% growth well which for the last 150 years in the US, which has been at the frontier, has never broken out. All of the innovation that we’ve had, the human ingenuity of the last 150 years has just been enough to keep us on the 1.9 % growth rate, 2 % growth rate, right? So saying that we’re going to break out of this, I think means that this is a tall order, but…AI has this potential because AI is different from any other innovation. It’s the potential to be innovation about how we innovate. It can increase the pace at which innovation occurs, if that’s the proposition, and if that happens, then the game changer and the revenues that come from that are very material. So I know I sound like a tech bro that I have nothing to do with Silicon Valley per se, but I do think that for the first time it is conceivable to see how this could happen. The jury is out. We just think it’s too early to conclude it won’t happen. And moreover, right now we’re talking about a trillion of investment that has been committed out of the five trillion. So that can be recalibrated as we learn. If it takes longer to be deployed, I think these tech companies will readjust. But one of the consequences of all this, which is that we’re going to go to a phase of leveraging up because the build out happens before those revenues in the future. And even if I were convinced that these revenues would happen, they are down the road. So we’re to have to leverage up. the meantime, we’re going to have to bridge. And the last thing I would say, which you referred to, Ali, is that we can be convinced on the macro picture heading up doesn’t mean we know who’s going to win. The argument is that the tech industry is a monopoly that can extract rent. And if they’ve done that, we’ll continue to do this. But when you think about a medical breakthrough, we’re going to be talking about big tech with big pharma fighting for the revenue chain of that new medical procedure, right? Or drug. And I’m not sure who’s going to win that revenue sharing at that stage. So very much uncertain who actually extract the revenues, even if you’re convinced the revenues.

Ian Pollick: Okay look, we’re going to wrap this up in a second but what we usually do is do a little bit of a pop quiz with all of our guests before we finish the show. So, Jean, are ready?

Jean Boivin: I don’t know if I can say yes to this, we’ll do it. Let’s do it.

Ian Pollick: Okay. Question number one. Who is the fastest growing DM market in 2026?

Jean Boivin: I mean, Korea is unbelievable, right? I I don’t know if it can keep at that pace, but I didn’t see that explicitly in 2025. I’m gonna assume some momentum. Korea. I’m talking about South Korea, just to be clear.

Ian Pollick: Okay, and question number two. Okay, we figured it out. We figured it out. What is the slowest growing DM economy in 2026?

Jean Boivin: It’s going to be Europe. Which one there? think you can pick. Not Spain. Spain continues with momentum. But yeah, some France.

Ian Pollick: Okay, and last question. Has Jean Boivin ever been to the Jean-Baptiste Van River?

Jean Boivin: I have seen it. I don’t know where it is, but I remember seeing a river called my Name. Yes, I think I ran into it.

Ian Pollick: You do have a river after your name. You should go and take a picture. Listen, John, this was a fantastic conversation. We thank you very much for spending time with us and our listeners and to all of our listeners. Remember, there were no bonds harmed in the making of this podcast.

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A Conversation with Jean Boivin

CIBC Economics

Ian Pollick

Managing Director

CIBC Global Markets

Ali Jaffery

Senior Economist

CIBC

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