MNI POLICY: BOC: Best Action is Restoring Full Employment

Governor Tiff Macklem said Thursday the Bank of Canada's best contribution will be restoring full employment alongside the regular 2% inflation mandate, and policymakers know the quality of the Covid-19 rebound also depends on whether extraordinary actions like QE stem inequality created by major job losses among low-income workers.

Much of Macklem's speech went beyond the traditional view that monetary policy is a blunt instrument best used to tackle broader economic conditions like its single mandate targeting inflation. He broke out how women, racial minorities and youth have lost out the most in the job market in the pandemic. The remarks came the day after the BOC pledged a long hold of the record low 0.25% interest rate and the potential to "calibrate" the at least CAD5 billion a week in federal bond purchases.

The recovery in the job market will take longer than in a regular recession and inflation will stick close to zero for the foreseeable future, and the economy is set to slow in coming months, Macklem said.

"As the economy shifts from reopening to recuperation, it will continue to need extraordinary monetary policy support. This is how we can help bring the economy back to its capacity and help get people working again," Macklem said in the text of his speech. "The best way to durably improve economic outcomes and avoid the scarring effects of extended job losses is to get people working again."

Relief Checks

Macklem also went fairly far with several references to how strong fiscal action has protected incomes, including the CAD2,000 a month relief checks. The government this month will shift millions of people back onto somewhat stricter traditional jobless benefits to encourage people to return to available jobs, and perhaps to slow growth of the record CAD343 billion deficit topping 15% of GDP.

Most of today's monetary support will be needed for some time, according to a summary the BOC published alongside the speech.

Macklem also said that while Canada has experienced less inequality since the U.S. in recent decades, he's aware of arguments that QE can be seen as delivering benefits to a privileged slice of society, and that the pandemic may accelerate other trends hurting low-income workers. He also said there is some evidence that even in the U.S., QE can ease inequality.

"The stronger and more durable the recovery, the more opportunity there is for everyone. And the more opportunity there is for everyone, the stronger the recovery, and the more durable is growth," Macklem said.