There is still a lot of confusion regarding the Bank of Canada's motives.
When the Bank of Canada's five-year mandate was up for renewal, the finance department was run by a member of Parliament.
There was something odd about the years-long process that was barely noteworthy then, and it may be complicating the central bank governor's efforts to contain the inflation outbreak now.
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The policy wonks call it good governance because of the decision in the 1990s to clarify who was in control of monetary policy by giving politicians a veto over the mission statement. The public was reassured that the interest-rate setting was determined by the business cycle and not the election cycle.
The central bank took on the burden of maintaining confidence in the system. The process that led to the renewal of the mandate was strange because the unelected participants were more transparent about what they wanted to achieve than the elected participants.
The Bank of Canada, under the leadership of former governor Stephen Poloz and former senior deputy governor Carolyn Wilkins, did a great job of transparency. There was a doubt about using inflation as a guide for interest rates.
The two embraced the doubt. Anyone with an internet connection could watch a conference at the central bank headquarters in Canada via livestream. Alternative approaches to testing were used.
Macklem took over in 2020 and oversaw the creation of an 84-page report on why the Bank of Canada decided to stick with an approach that had correlated with good results for three decades.
The Bank of Canada and the Government of Canada believe that price stability is the best contribution of monetary policy to the well-being of Canadians.
Macklem was forced to restate his mission at the start of his speech about the labour market because of confusion about the Bank of Canada's motives.
The central bank will try to achieve maximum sustainable employment as long as the push doesn't jeopardize the "primary objective" of achieving "low, stable inflation over time."
An implicit commitment was made by the addition. When inflation is at the low end of their comfort zone, the Bank of Canada keeps an eye on employment because a certain level of economic growth is needed to offset deflation.
Some partisan watchers saw a change. Macklem's recommendations had been prepared since the summer after the previous mandate was released. It took Freeland until the end of the year to sign off. Why didn't it happen sooner? It opened up questions about the Bank of Canada.
At the time, it appeared to be harmless. The attacks on the Bank of Canada continued even after inflation blew up. Macklem was focused on Statistics Canada's Labour Force Survey when he should have been watching the Communist Party of Canada.
The Bank of Canada has been accused of deliberately slowing economic growth to a standstill in order to take the heat out of inflation. The Centre for Future Work is led by a former union economist who says that an engineered recession will make the pain worse.
There is a key word in the mandate. The false ceiling for the country's economic potential is set up by those who argue that the Bank of Canada shouldn't worry about the labour market. The people who accuse the central bank of putting a number ahead of livelihoods are de-emphasing the risks of allowing the economy to run hot for too long.
The correct approach could be either one. The risks that come with going all in on both paths are great. The Bank of Canada tries to manage risks instead of being locked into a path. It will make mistakes like it did last year when it waited too long to raise interest rates. More often than not, that approach should be avoided.
Macklem wants to avoid a recession. He told his audience in Toronto this week that he thinks he can take advantage of a high number of job vacancies to lower interest rates. He told reporters that unemployment will rise, but it will not be as bad as it would be during a downturn. A significant recession will follow if inflation continues.
He said in his speech that the interest rate increases were front loaded. We are committed to returning inflation to the target of two per cent. The labour market needs to be re-balanced.
Kevin Carmichael can be reached via email at kcarmichael@postmedia.