MNI POLICY: Central Banks Threatened by Public Mistrust -BOC

Central banks may lose public trust and their independence unless they tackle social media misinformation and perceptions around bank bailouts protecting the rich, Bank of Canada Governor Tiff Macklem told the Jackson Hole conference Thursday.

The speech is a shift for a central bank that often said its tools are blunt and not designed to focus on divisions across regions of Canada or different groups of people, a view that until recently was often shared by peers in the U.S. and abroad. Macklem didn't lay out any concrete ways that he would change how he sets the record low 0.25% policy rate or its use of QE to revive the economy.

"Without public understanding and support for independent central banks, we risk losing the public trust that is so core to our mission," said Macklem, a former top deputy and finance official who started a seven-year term in June. Today's rock-bottom rates and extraordinary policies mean "it is more essential than ever that household inflation expectations remain anchored on our target, so we can lower real interest rates," he said.

Macklem appeared to aim some of his message at nations like the U.S. and U.K. that stoked public anger with bank bailouts in the 2008 financial crisis, a move Canada was able to avoid.

"When too-big-to-fail global banks were bailed out in the crisis -- and struggling homeowners weren't -- it stoked the belief that the system is rigged and that globalization benefits a few at the expense of many. This contributed to the broader decline of trust in public institutions and experts and a rise in political populism -- trends that affect our jobs as central bankers," Macklem said.

Central banks should use more plain-language messages that work in an era of social media, because some research shows that's more effective than transmitting information through investors and the media, Macklem said.

Central banks must also dig deeper into seeming misperceptions about the economy and incorporate those gaps into policy making, he said. One prominent example is the gap between the public's perception that consumer prices often rise more than the official inflation rate.

"We need to recognize that many people don't feel like inflation is falling when food inflation has been averaging almost 3 percent. People should know that we are taking that into account when we make policy," Macklem said.