Tiff Macklem, the Governor of the Bank of Canada, has a compelling picture. This goes beyond increasing the institution’s mandate to focus on tackling urgent needs like housing affordability for all Canadians. In his five year term, Macklem has been witness to profound, transformative changes within the Canadian economy and its role in the world. These changes have made him reconsider the Bank’s role in tackling major economic hurdles.
For his part, during the recent Emergency Economic Summit, Macklem was willing to have candid conversations with his counterparts from other countries. Though he acknowledged there was not consensus among all the perspectives, he underscored that international collaboration will be vital in overcoming economic unknowns. The truth is that international co-operation was never simple. Now, at time when things are especially daunting, is especially important. That makes it more important,” he stated.
Macklem’s remarks come at a time when many Canadians have become increasingly aware of the Bank of Canada’s actions and decisions. Prolonged economic turbulence has made all of us more comfortable with that reality. The Bank is doing all it can to relieve inflationary pressures, including external factors like a tariff war with the United States. The Governor is committed to ensuring that these economic impacts do not result in a long-term spike in inflation.
In order to realize this, the Bank of Canada has taken a more nimble stance towards data analysis. It was once considered the most opaque institution, but even in a post-pandemic world, it is—at least to the public—that first organization. Macklem noted that the Bank’s inflation target remains at two percent, a goal set by the federal government’s mandate, which is scheduled for review next year.
Macklem’s team is already on track to deliver a “soft landing” for Canada’s economy. This unique trifecta might bring down recalcitrant inflation with stiff monetary policy while avoiding a recession. Macklem admits that inflation makes things worse during major upheavals or when the economy is running so inefficiently. This is in sharp contrast to previous policy, which frequently brushed off supply shocks as short-lived.
As the Governor said, the Bank are now deep in the weeds reviewing those metrics. Specifically, it is concentrated on core inflation and its response to supply shocks. “There is a role for monetary policy to smooth out some of that adjustment — support the economy while ensuring that inflation is well-controlled,” he remarked.
The Bank is currently lobbying hard to broaden its mandate to take housing affordability. These final negotiations with the federal government are expected to conclude by early next year. Macklem underscored Canada’s leadership role as chair of the G7, stating, “I do think Canada, as the chair of the G7, has a leadership role to play.”
He warned that if an overheating economy were too allowed to hit a wall of supply shocks, the result could be inflationary catastrophe. “The economy does not work well when inflation is high,” he emphasized. Underpinning this emphasis on stability is a progressive view of how achieving price stability aligns with the broader goals of fostering a strong economy.
Sharon Kozicki, a senior deputy governor at the Bank of Canada, reaffirmed Macklem’s sentiments by stating, “I’m not going to pretend it’s been an easy few years for anybody. I think the framework has performed well.”
Lastly, Macklem admitted the sad truth that many Canadians have recently come to know—inflation has become all too real, affecting the day-to-day lives of many Canadians. “Unfortunately, a whole new generation of Canadians now know what inflation feels like, and they didn’t like it one bit,” he said.
