Macklem: More Humble About How Exactly Monetary Transmission Is Working

Q: Why didn’t the first eight increases do more to slow the economy? Is something missing in your modelling beyond lags?

A: We have to be a little more humble about how exactly the monetary transmission is working.

There has been some success but rate sensitive components having slowed as much. We’re seeing some easing in the labour market but it’s been more gradual than we expected. Most households have accumulated savings through the pandemic, which may be buffering them. Population growth has increased, with a big increase in immigration (temporary foreign workers) which is easing some of the labour shortages (firms saying as such) but the new entrants are also new consumers/renters and probably ultimately home buying.

Mon pol is working but there is just more underlying strength. It’s got to work a little harder to relieve those price pressures.