Tiff Macklem would like to make one thing very clear: as governor of the Bank of Canada, he did not spend the worst part of the pandemic in the basement of the central bank printing money to fund stimulus programs.
Some federal politicians, most notably Conservative Leader Pierre Poilievre, accused Macklem and the BoC of triggering inflation by engaging in a “money printing orgy” to sustain the economy during the worst of the pandemic years. As inflation and interest rates rose, the Tory leader subsequently referred to the BoC as “financially illiterate” and threatened to fire Macklem as one of his first acts as prime minister should he win the next election.
The bank did not print reams of additional currency and Poilievre’s attempts to blame monetary policy in Canada for inflation are tenuous at best. However, Macklem acknowledged the Tory leader’s refrains do create certain “images” in the debate over policy that take root in the public consciousness.
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Bank of Canada Governor Tiff Macklem is on a national tour to dispel myths and explain monetary policy. He gave the keynote address at a Winnipeg Chamber of Commerce luncheon at the RBC Convention Centre Monday.
“This image of us with a giant printing press in the bottom of the Bank of Canada — it’s a lovely metaphor,” Macklem said during a visit to Winnipeg earlier this week. “But that’s not the way monetary policy works.”
Macklem is on a national tour to dispel myths and explain monetary policy. He notes that although it’s always been part of the governor’s job to get out and talk directly to Canadians, he is making an “expanded” effort this summer.
Macklem agreed there is “an unusually high interest in monetary policy” in Canada right now, driven by the political debate and continued high inflation and interest rates.
“I think at this time in particular, it’s important that we listen to Canadians, we meet face to face and get their perceptions to understand the decisions they’re facing,” Macklem told the Niigaan and the Lone Ranger podcast. “And at the same time, we do our very best to explain the decisions we’re taking and why we’re taking them and demonstrating that we understand the impact that it’s having on Canadians.”
Tiff Macklem signs money, he doesn’t print it | RSS.com
If the message on monetary policy is being somewhat muddied by politicians right now, it is in part because Macklem and the BoC did make some early pronouncements during the pandemic that, lamentably, did not come to fruition.
Macklem was widely quoted in July 2020 as saying that Canadians who needed to borrow money for big purchases should not be worried because “you can be confident that (interest rates) will be low for a long time.”
His assessment was correct, at least in that moment. In 2020, unemployment spiked and economic growth plummeted as the pandemic took hold. As the threat of depression came into focus, central banks all over the world, including the BoC, lowered interest rates in the summer of 2020 to help stave off “deflation” and an economic collapse.
Macklem said he has no trouble admitting now that very few people, including himself, were able to predict the precipitous rise in inflation that peaked in June 2022 at more than eight per cent.
Stimulus programs had been very successfully in supporting the economy, he said. However, before anyone could pat themselves on the back, new economic pressures in the form of supply chain bottlenecks, the war in Ukraine and skyrocketing oil prices drove down the supply of almost everything, at a time when demand was increasing.
“You know, this was an unprecedented situation. Yes, we, we were surprised how rapidly inflation went up coming out of the pandemic. You know, a lot of this had to do with global supply chains were very gummed up. And… demand surged at the same time that supply was still gummed up. I think it is true, we underestimated that interaction.”
Macklem also agreed the supply-chain problems provided cover for “opportunistic” price increases introduced by manufacturers and retailers that were not justified by other economic conditions. It was at this point, Macklem said, that consumers started to feel the full pinch of inflation.
Why, then, are so many people in Canada trying to pin what is a global financial phenomenon on the federal Liberal government and the BoC? Macklem wouldn’t speculate on the motivations of those. However, he said political hyperbole does not change the true, root causes of inflation: too little supply and too much demand.
Macklem also emphasized that while the central bank did, at one time, try to address inflation by manipulating money supply, that strategy was abandoned in the early 1980s when it was clear “it simply didn’t work.” Since then, the BoC has used interest rates to address high inflation, a strategy that can be painful but ultimately effective at bringing prices down.
What does the future hold for the Canadian economy? Macklem was cautious in his forecast given the fact that the economy is dynamic and, essentially, unpredictable. However, the direction we’re on right now is positive.
“I think the message is, look, we’ve been through a very difficult period. This has been a difficult monetary cycle, getting inflation down. It has been painful. We’re not through it yet, but we’re starting to come out the other side.”
dan.lett@winnipegfreepress.com
Dan Lett
Columnist
Dan Lett is a columnist for the Free Press, providing opinion and commentary on politics in Winnipeg and beyond. Born and raised in Toronto, Dan joined the Free Press in 1986. Read more about Dan.
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