Freeland pledges to pull back stimulus alongside BOC, dependent on a potential hard landing.
Canadian Finance Minister Chrystia Freeland said Thursday the government will support the central bank's lead in the inflation fight with policies aimed at improving supply chains, and signaled she may introduce new fiscal stimulus if the economy has a hard landing.
The speech is the clearest signal yet that as for President Joe Biden, inflation has become the dominant domestic issue for voters in a legislature where governing Liberal Party lacks a clear majority to control the agenda. Freeland attributed most responsibility for inflation control to the central bank while rejecting Conservative leadership candidate Pierre Poilievre's calls to fire Governor Tiff Macklem for failing to head off the fastest price gains in decades at 6.8%, saying it's a global problem.
"The Bank has begun the work of bringing inflation back within target, and it has the tools and the expertise it needs to keep inflation from becoming entrenched," she said in the text of a speech she's giving in her hometown of Toronto. "At this time of global economic and political volatility, undermining Canada’s fundamental institutions—very much including the Bank of Canada—is highly irresponsible, not to mention economically illiterate."
Freeland reiterated a "fiscal anchor" of lowering debt-to-GDP as a way of slowing inflation, a budgetary stance business groups and a former top official have told MNI is too passive. The government will also take steps to boost supply networks through immigration and worker training, while Freeland also touted past efforts to boost housing supply and a recent national childcare program as a way of helping with affordability. The speech did not lay out any major new spending programs.
"As the Bank of Canada withdraws monetary stimulus, our government is likewise withdrawing fiscal stimulus," Freeland said. "We will take real and tangible steps to help get inflation under control and make life more affordable for Canadians."
The BOC has hiked rates by 125bps this year to 1.5% and is expected to move by at least half a percentage point at its July 13 meeting. A former finance department adviser told MNI the chances of a Canadian recession will climb as the BOC hikes.
"Now, given the uncertainty in the global economy, would it be wise for me to stand here and rule out the need for further support in the future? Of course not," she said. "A soft landing is not guaranteed," Freeland said, while pointing to forecasts from the IMF and the OECD showing Canada’s economy posting solid growth through next year.
Canada is also working to boost production of supplies to counter the threat posed by Russia's invasion of Ukraine, said Freeland, whose family emigrated from that country.
"We have entered a period of friend-shoring; one in which our allies know that it is worth spending a little more to build their supply chains with other democracies," she said. "Europe is determined to wean itself from Russian energy, but its people must still heat their homes. These past months have reminded us that security includes energy security, and Canada is working to ensure it for our democratic partners," she said.