Bank of Canada governor has ensured no critique goes unanswered for long
Published Dec 29, 2022 • Last updated 4 days ago • 5 minute read
13 Comments
A sign for the Bank of Canada in Ottawa. Photo by Justin Tang/Bloomberg Not everyone is angry at Tiff Macklem.
Advertisement 2 This advertisement has not loaded yet, but your article continues below.
The Bank of Canada governor was waiting for the light to change at a corner in Vancouver on Dec. 12. There was a woman standing beside him.
Financial Post Top Stories Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.
By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails or any newsletter. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300
“I sensed she was looking at me,” he recalled a week later. “I looked at her and she asked a bit hesitantly, ‘Are you Tiff Macklem?’”
The governor answered in the affirmative.
“You are doing a great job,” the woman said.
Macklem thanked her. “Then the light changed, and we all hustled on our way,” he said. “It was a brief encounter, unexpected and a little heartwarming.”
It was also evidence that we’re in a patch of trouble since things usually aren’t going well when central bankers have achieved a profile beyond the business pages.
Stephen Poloz, Macklem’s predecessor, was an effective governor, but he never became a household name. He had changed the benchmark interest rate only seven times between June 2013 and March 2020, when the pandemic prompted the central bank to drop borrowing costs to effectively zero from 1.75 per cent with three half-point cuts over a span of 23 days.
Advertisement 3 This advertisement has not loaded yet, but your article continues below.
Poloz might have become a famous crisis fighter like his predecessor Mark Carney (Great Recession), but he opted to retire from public life when his term ended a few months after overseeing those dramatic interest rate cuts. Macklem didn’t author the response to the COVID-19 crisis, but his reputation will be made (or unmade) by how he handles the aftermath.
Bank of Canada governor Tiff Macklem speaks at the Business Council of British Columbia, in Vancouver, on Dec. 12. Photo by Jennifer Gauthier/Reuters It’s been rough so far. Macklem is now recognizable to passersby in part because he orchestrated as many interest rate changes in the past nine months as Poloz did over almost the entirety of his seven-year term. He made a bad call on inflation, initially assuming the burst in prices that occurred in the spring of 2021 would burn itself out in a matter of months. That didn’t happen, forcing him to make up for his mistake by executing the most aggressive series of interest rate increases in the Bank of Canada’s history. The benchmark rate will end the year at 4.25 per cent, after beginning 2022 at 0.25 per cent.
Advertisement 4 This advertisement has not loaded yet, but your article continues below.
Inflation’s surge to a four-decade high this summer and the Bank of Canada’s willingness to court a recession to get price pressures under control have made Macklem the most controversial Canadian central banker since John Crow, who was so committed to using higher interest rates to get inflation closer to zero that Jean Chrétien’s government opted against reappointing him after the Liberals won the 1993 election.
Macklem is no John Crow, but his credibility with politicians could be just as tenuous.
After taking over from Poloz, Macklem talked of probing the perceived limits of monetary policy to see if the jobless rate could be nudged lower. That caused some Conservatives to distrust his commitment to price stability. Opposition leader Pierre Poilievre declared during his leadership campaign that he would fire Macklem if he became prime minister, blaming the inflation surge on the Bank of Canada’s decision to create hundreds of billions of dollars to buy Government of Canada bonds.
Advertisement 5 This advertisement has not loaded yet, but your article continues below.
Tiff Macklem has faced scrutiny from politicians. Photo by Brent Lewin/Bloomberg Critics on the left, meanwhile, appear to have forgotten Macklem’s inclination to keep the unemployment rate low, as he has become a frequent target of the New Democratic Party, while the head of Unifor has accused him of engaging in a “class war.”
These are the cartoonish takes on Macklem’s alleged villainy and belie the fact that the governor is in touch with regular people. For example, the governor retires to his office on Friday afternoons and edits the responses to letters he receives from Canadians. A year ago, those letters tended to be from people who were struggling to buy a house despite making multiple offers. Now, the missives are about higher prices and interest rates.
“There’s a whole generation that’s never felt this kind of inflation,” he said. “For people who did buy houses at the top of the cycle, with a variable-rate mortgage, they’re feeling real financial strain. You do feel for these people.”
Advertisement 6 This advertisement has not loaded yet, but your article continues below.
All this matters because Macklem must retain a certain level of credibility to do his job. If the political attacks start to resonate with the public, the central bank will struggle to convince households and businesses that it can be trusted to do its job. That’s another reason he is being recognized on the street: he wants to be seen. Barely a week passes without the governor or one of his deputies giving a speech or interview, ensuring no critique goes unanswered for long.
Recommended from Editorial Tiff Macklem reflects on debt, lessons learned and why inflation ‘messes up’ competition Tiff Macklem says he won’t settle for anything less than a return to 2% inflation Sticky inflation numbers probably not to Bank of Canada’s liking Kevin Carmichael: The failure at the Bank of Canada that likely made inflation worse This advertisement has not loaded yet, but your article continues below.
Article content Few should doubt Macklem’s commitment to keeping inflation at the two-per-cent target now. He acknowledges the Bank of Canada misjudged what was going on with prices and waited too long to start raising interest rates. But he’s reflecting on his mistakes in real time, rather than waiting for a post-mortem. He said the central bank didn’t know as much about supply chains as it should have and that its models couldn’t compute what might happen in a scenario such as the one that unfolded after authorities began lifting COVID-19 restrictions. (Both issues are in the process of being corrected.)
Macklem said he and his deputies must also be “better listeners and better communicators.” The central bank has stepped up its outreach to businesses and others, and earlier this month it announced it would release a “summary” of Governing Council policy deliberations, starting with the first interest rate decision of 2023 on Jan. 25. “The principal benefit of that will be it will give a little bit more insight into the thinking of the Governing Council,” he said. “Hopefully, it will help a little.”
It probably won’t make much difference to those who have already made up their minds about Macklem. But those who are keeping an open mind might be impressed by the additional transparency. At least he’s not hiding.
• Email: kcarmichael@postmedia.com | Twitter: CarmichaelKevin