MNI INTERVIEW: BOC Can Halt Rate Hikes Now: Union Leader

The Bank of Canada is poised to say it is done hiking interest rates as the economy falls into a recession, punishing workers in a way that has been aggravated by bosses' use of Governor Tiff Macklem's bad advice to restrain pay raises, the country's top union leader told MNI.

“I’m cautiously optimistic that maybe there is now going to be a pause to see what effect the previous increases have on us,” said Bea Bruske of the Canadian Labour Congress, which has 3 million members out of Canada's 20 million workers. “I think that was kind of signaled by the Bank of Canada Governor,” the CLC President said in an interview.

Macklem raised rates half a point to 4.25% on Dec. 7, for a cumulative rise of 4 percentage points since March, and economists are split on whether there will be a quarter-point move at the next meeting on Jan. 26. Officials after the last decision said they are reviewing the effect of past hikes and dropped a phrase about needing to go further, saying any future action is now more data-dependent.

“We’re frustrated that there isn’t a pause” already, Bruske said, noting Canada has been one of the most aggressive major global central banks. (See: MNI INTERVIEW: BOC Hiking 50 Before Long Pause- Conference Bd)

UNEQUAL DOWNTURNS

"We know that when there is this increase, that it does push us towards a recession,” she said. “When we have an increase in rates, we know that families have to tamp down on their spending.”

Many economists forecast a mild recession next year, though from a strong starting point with unemployment near record lows around 5%. Royal Bank says the jobless rate will climb 1.7pp to 6.8% next year, less than any other recession since the 1970s.

Headline job figures blur more damaging effects felt by service and retail workers who made the biggest sacrifices during pandemic shutdowns, Bruske said. The Bank has failed to live up to a mandate revised last year to include language about seeking full and more inclusive employment within its main goal of 2% inflation, she said.

“While I understand that the Bank of Canada has to make independent decisions in terms of how it carries out its mandate, full employment should still be a governing factor within that," Bruske said.

GREED-FLATION?

The inflation fight is also misguided with gains influenced by powerful corporations more than is being admitted, she argued. Most economists disagree, instead citing higher commodity prices since the Ukraine invasion and frayed supply chains.

Inflation is even more painful with wage gains lagging well behind the CPI, Bruske said. Macklem's comment earlier this year about avoiding big long-term wage increases was "egregious" and still looms over many contact talks, she said. The Governor has since said it's not the Bank's job to weigh in on pay discussions.

“I appreciate Macklem’s approach to this and coming back and saying that’s not his intent," she said. "Once that kind of a message is out there, employers glom on to that and that’s the issue that’s raised at the bargaining table,” said Bruske. She started in the labour movement in 1987 during a 125-day dispute at a grocery chain in the province of Manitoba, and became CLC chief last year.

Canada faces deeper job-market problems, including federal unemployment benefits that failed to cover millions of workers during the pandemic. Benefits need to be more generous and expand to include gig workers, she said.

“Government also needs to focus on the employment issue by making sure that we're supporting workers who may find themselves unemployed by this rise of interest rates.”