Your article continues below even though the advertisement has not loaded yet.
Fiscal policy can do more. She said she's willing to do her share. It will come later.
Freeland is the Minister of Finance and the deputy prime minister.
Blair Gable is the photographer.
We don't know if the Finance Minister is preparing for an inflation fight or not.
Your article continues below even though the advertisement has not loaded yet.
The fiscal update tabling on December 14 was a mild surprise for a government that has a reputation for fiscal profligacy, and perhaps a sign that even Prime Minister Trudeau has become spooked by some of the most intense pricing pressures in three decades.
In the forward of the update, Freeland said that they were aware of elevated inflation. The challenge of re- opening the world's economy is driving inflation. It is more complicated to turn on the global economy than it is to turn it off. The consequences of a time unlike any other are what we are experiencing.
The Finance Department expects the budget deficit to be smaller in the fiscal year ending March 30, 2022, due to increased revenue from stronger economic growth and surging oil prices. The debt is expected to peak at 48 per cent of GDP this year and then decline to 44 per cent by the end of the decade.
Your article continues below even though the advertisement has not loaded yet.
If the economy regains its footing after last year's epic recession, a debt load of that size is not a problem.
The Omicron variant is the most pressing concern in the city, and Freeland set aside some money in anticipation of another wave of infections. Canada and other rich economies are in the middle of an inflation scare. An economy that has achieved full employment is past the point of needing fiscalStimulus, so a steady-as-she- goes financial plan will help.
Ed Devlin, founder of Devlin Capital, said on BNN that they didn't do any extra spending. Good on them.
Your article continues below even though the advertisement has not loaded yet.
That was the least the federal government could have done.
The soaring cost of housing is one of the main drivers of inflation and Freeland promised action in her next budget.
Increasing the economy's capacity to generate non-inflationary growth is one way to fight inflation. In October, the Bank of Canada dropped its estimate of potential growth to 1.6 per cent, reflecting chronically weak productivity and lackluster business investment. An effort to shift federal spending to programs that would boost investment and competitiveness could help offset supply shortages.
Measures to promote jobs and growth will figure prominently in the next budget, but they were absent in the update, meaning investors and executives are facing another period of uncertainty over the Trudeau government's commitment to tackling a long list of structural economic issues.
Your article continues below even though the advertisement has not loaded yet.
Mark Agnew, head of policy at the Canadian Chamber of Commerce, said that we need to walk and chew gum at the same time and address the economic challenges that keep back our growth potential the day after. We shouldn't wait until we emerge from the epidemic since it's not an overnight fix.
Freeland put pressure on herself to rise to the occasion by acknowledging that governments have put too much pressure on their central banks to carry the burden of economic recovery.
The Bank of Canada has a new mandate that recognizes that central bankers are not gods. Monetary policy can regulate the heat in the house, but it can't do much if the kitchen cooks faster than the upstairs bedroom
Fiscal policy has a role to play in smoothing macro- economic conditions, a significant addition because politicians around the world tend to delegate responsibility for managing the aftermath of the Great Recession to their central banks.
The government and the bank acknowledge their joint responsibility for achieving the inflation target and promoting maximum employment, according to the mandate.
Macklem assumed a burst of inflation this summer would pass as executives and logistics experts figured out ways to unblock post-pandemic supply chain snarls. Macklem and his peers at other central banks thought the process would be quicker.
Your article continues below even though the advertisement has not loaded yet.
The result is uncomfortably high pricing pressures that officials worry could turn into an inflationary spiral. The Bank of Canada uses the consumer price index to guide interest rate policy and the year-over-year increase is approaching five per cent, the highest since the early 1990s.
Macklem is trying to bring the temperature down. He stopped talking about running the economy hot enough to push the unemployment rate back up to five per cent, and now wants the public to be ready for an interest-rate increase by the second quarter of 2022. The Bank of Canada ended its bond-buying program in October, a signal that policy-makers thought the economy was strong enough to survive without emergency stimuli.
The Bank of Canada should move faster. Macklem is careful not to premature choke off the recovery. Employment is back to pre-pandemic levels, but the gross domestic product is still lower than it was in February 2020. Higher interest rates might cause some inflation in the housing market.
Households relying on the value of their homes to float the debt they accumulated by chasing real-estate prices could be hurt by an unexpected pivot to higher interest rates. It is better to move to a higher interest-rate setting gradually. Monetary policy can't do much to increase the supply of computer chips or speed up the unloading of containers in crowded ports.
Fiscal policy can do more. She said she was willing to do her share. There will be proof later.
Email: kcarmichael@postmedia.
