MNI POLICY: BOC's Macklem Signals Patience to Aid Jobs Rebound

Bank of Canada Governor Tiff Macklem on Tuesday signaled the central bank should be patient about testing how strong the job market rebound can be through the pandemic, saying the last economic cycle proved record low unemployment can be consistent with stable inflation.

The job market has been set back in the near term by the quarter million jobs lost during the second wave of Covid-19, he said in the text of a speech to the Edmonton and Calgary chambers of commerce. Vaccine rollouts suggest brighter prospects later on, though Macklem said the recovery will be choppy, repeating guidance that the 0.25% policy rate will likely be needed until 2023 and asset purchases now worth CAD4 billion a week are ongoing.

"With a complete recovery still a long way off, monetary policy will need to provide stimulus for a considerable period," Macklem said. "We have committed to keeping our policy interest rate at the effective lower bound until economic slack is absorbed so that our inflation target is sustainably achieved. And we have backed up this commitment with our program of large-scale government bond purchases."

The speech's focus on the job market is wider than the central bank's single direct mandate of keeping inflation at 2%, with Macklem saying good policy often means stable prices and full employment go hand in hand. Other groups must also take steps to recover job losses that have fallen hardest on young workers, low wage earners and working mothers, he said, an argument also made this year by the Fed's Jerome Powell.

"We expect a solid rebound in the immediate months ahead," Macklem said. "Nevertheless, it will be some time before we see a complete economic recovery. The Bank's latest forecast doesn't anticipate economic slack being fully absorbed until into 2023."

The return to a solid job market "remains a long way off," the governor said. "With the tightest restrictions being lifted in most parts of the country, we can expect some bounce-back in employment in the near term."

"With vaccinations expected to ramp up, we can be more confident in sustained strong growth through the second half of the year and into next year," Macklem said.

The last economic cycle showed that even with low unemployment "inflation wasn't threatening to take off," he said. "As the pandemic recedes and the recovery continues, we will keep that experience in mind. Monetary policy can continue to support demand in order to minimize scarring and bring as many people into the work force as possible."

"We can expect a long adjustment process and a protracted recovery. The economy will need support for quite some time, and the Bank will continue to do its part," Macklem said.