Tiff McCalem faced some tough questions yesterday, as members of the US Council on Foreign Relations grilled the governor of the Bank of Canada over whether his northern neighbor was getting a trouble-free exit from the recession of the COVID-19 pandemic Will happen.
Led by financier and former Democratic politician Roger Altman, members of the US think-tank asked questions of inquiry into whether the Canadian housing bubble had any spillovers on the global economy, as well as jobs, inflation, commodity pricing and the difficulty of moving. Will have effect. From a low interest rate regime to one without monetary stimulus.
For Canadians who have listened to Macklem’s views in the past, the answers were in some ways less revealing than the questions. But among the new things he passed on were fears that inflation could be longer-lasting than expected and that job recovery could be slower.
Inflation: Blip or Trend?
On the topic of inflation, Macklem answered a question that sparked growing concern in the financial community that inflation was not a blip, but a trend.
“Many people in finance are learning that the most important word in the English language is ‘transient,'” Altman quipped, referring to a term used repeatedly by central bankers to say that inflation will go away on its own. .
Altman said, “How confident are you that this is actually fleeting, because if you surveyed smart people in finance…
“It is the job of central banks to say that,” McCalem responded in a similarly humorous tone.
But at both the council session and the subsequent news conference, the bank governor acknowledged that inflation was running hotter and could last longer than initially expected.
In August, Canada’s inflation rate peaked at 4.1 percent – the highest level since 2003.
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And as gasoline pump prices break records, with cars and equipment unavailable due to a lack of component chips and ships at North American ports, Macklem said the road to inflation was not as smooth as many had hoped when it was first. There were signs of rising prices.
“We expect to work through these supply disruptions, but I would say, they are proving to be more complex and they may last a little longer than they used to be.”
slow job recovery
Macklem, of course, was speaking ahead of the release of Friday’s latest jobs numbers in both Canada and the US. But he added that the labor market is also becoming more complex.
Still, there were growing signs that jobs for low-wage workers, who often include recent immigrants, visible minorities and women, were coming back, he said. But the process turned out to be slower than they expected.
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“I think what we’re seeing here is opening up the economy is more complicated than closing the economy,” Macklem said, using a similar line to both audiences.
“This process of companies finding the right jobs for workers and workers is taking some time.
“What this means is that … we expect to see a good recovery in the second half of this year, but it may be a little slower, it may take a little longer than we expected.”
One thing commentators in the US have noted is that the continued growth in jobs, if shown in Friday’s employment numbers, will certainly force Macklem’s US counterpart to begin the process of raising rates – and that would be an economy. can be disruptive to those who have become accustomed to bargain-basement lending.
In another question, Altman alluded to the lack of massive amounts of money flowing through the system.
In the US, Europe and China, M2 – a measure of the money supply – was up about 10 percent, he said, because of government action. And the holding of bonds by the Bank of Canada used to stimulate the economy is about 300 percent, he said.
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get out of pain
“One is tempting to think that it is going to be challenging, difficult for central banks to get out of this phase of extraordinary measures,” Altman told Macklem. “Tell us how you see that being managed and how you think it can avoid getting bumpy.”
Macklem conceded that there would be “likely some bumps” in the process. But one of the ways the central bank could help, he said, was to be as transparent as possible and “minimize surprises”.
The Bank of Canada has signaled its plan to slow bond purchases upfront and warned that it would start raising rates before selling its stock of stimulus bonds.
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The same applied to the US Federal Reserve in September when Chairman Jerome Powell revealed that the Fed was preparing to slow bond purchases as soon as November.
Two further questions from members of the think-tank addressed questions of great importance to Canadians: the fluctuating housing and commodity prices. But he indicated that those topics are important to our southern neighbors as well.
One question asked whether the effects of currently using Canada’s housing market as “a retirement asset” could spread across the border and cause damage there. Macklem was reassuring.
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On the second question of commodity prices, he made an oblique reference to the potential distortions of the current rise in oil prices, pointing to the fact that he could set only one interest rate for the whole of Canada – which in the past The “Dutch disease” has happened when oil prices rise.
Each of the cases addressed – and in many others – that may seem like esoteric topics of interest only to economists and market traders, actually have a significant impact on each of our lives, as Macklem briefly noted. Is.
“What happens in financial markets doesn’t stay in financial markets – it has a real impact, it affects jobs and growth.”
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