What's behind the rise of populism at the Bank of Canada

What's behind the rise of populism at the Bank of Canada

Financial Post


The Bank of Canada reviews the way it sets interest rates every five years. It then takes its findings to the Finance Department and the two work out whether any tweaks are warranted.

Changes are rarely made, as the search for a better method than targeting inflation has been akin to the quest for extraterrestrial life: it’s out there in theory, but the PhDs have yet to prove it in real life.

Nevertheless, there is no economic policy more important than the Bank of Canada’s mandate, so it ought to be subjected to a fairly rigorous postmortem.

The last time that happened, the central bank only made a half-hearted effort to involve the public, dispatching a deputy governor to give a speech on the subject in November 2014, and then barely mentioning it again until October 2016, when Stephen Poloz, then governor, and Bill Morneau, then finance minister, announced they were re-upping Canada’s approach to monetary policy without any changes.

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The absence of regular updates throughout the process ensured that the business pages made only a quarter-hearted attempt to keep tabs, so it’s certain that few in the general public would have realized that a rather important decision had been made with almost no input from the non-insiders.

The finance committee was asleep at the switch, as were the journalists and academics who fancy themselves “Bank of Canada watchers,” myself included . By the time a few of us got around to writing about the mandate review, the decision had likely already been made.

Whether it was this too-little-too-late outburst of commentary about the Bank of Canada’s opacity, or simply a recognition that the world had changed quite a bit by the end of 2016, the central bank has taken it upon itself to ensure there will no mystery around the next mandate review, scheduled to conclude next year.

Carolyn Wilkins, the senior deputy governor, in September 2017 hosted a conference on the issues the Bank of Canada should include in its research agenda, which it shared via webcast. She then provided an update in November 2018 in a speech in Montreal, during which she said the central bank would be conducting a “horse race” between the leading approaches to setting interest rates, opening the door to the first major change in monetary policy since Canada adopted inflation targeting in 1991.

That work will be coming along, and, as it does, the Bank of Canada has decided to pull open the curtains even wider. On Aug. 26, Wilkins will host a second workshop on the mandate renewal, including something of a half-time report on the “horse race,” which could bring the biggest clue yet as to whether policy-makers are ready to consider overhauling — or even dropping — the inflation target.

In another significant embrace of transparency, Tiff Macklem, the governor, has determined that neither parliamentary committees nor news outlets can be trusted to hold him accountable, so he’s going to ask the public to do it.

Macklem on Aug. 24 announced the central bank would be soliciting input from Canadians via an online survey called Let’s Talk Inflation , which will allow experts and non-experts alike to share their thoughts on questions related to potential new approaches, such as targeting nominal gross domestic product instead of the Consumer Price Index, and whether the goal of monetary policy should be maximum employment rather than price stability.

“The bank is committed to accountability and transparency in everything we do,” Macklem said in a press release.

It’s the latest evidence that central bankers have come to understand that they can no longer take for granted that the public sees them as positively as they see themselves.

The U.S. Federal Reserve prevented a global depression a decade ago, and became a political target in the process, as some Americans recoiled at the sight of unelected officials wielding so much power, while others saw the Fed as little more than a tool of Wall Street.

Canada’s central bank survived the Great Recession without attracting as much undue attention, perhaps because circumstances never forced it to do anything radical. That’s not the case now, since the COVID-19 recession has prompted it to pledge to create hundreds of billions of dollars to buy government bonds and corporate debt. It has also outsourced work to the advisory arm of BlackRock Inc., which has replaced Goldman Sachs Group Inc. as the global financial behemoth seen to be suspiciously close to governments, and a handful of Bay Street firms, which raises questions about conflict of interest, justified or otherwise.

The Fed learned the hard way about what happens when public institutions become too aloof and it’s been working hard to earn the public’s trust.

As President Donald Trump harassed Jerome Powell, the Fed chairman, repeatedly on Twitter last year, the U.S. central bank hosted a Fed Listens tour that included events hosted by each of the 12 regional banks and the Fed board of governors in Washington.

“One clear takeaway from these events was the importance of sustaining a strong job market, particularly for people from low- and moderate-income communities,” Powell said in a message included in the final report on the events, which was published in June. “Everyone deserves the opportunity to participate fully in our society and in our economy.”

That’s not the sort of message that we’ve been conditioned to expect from the technocrats that control monetary policy. Don’t be surprised if Macklem and other Bank of Canada officials strike a similar tone. Given the polarized state of politics, central banks’ independence will depend on building a layer of trust that can withstand partisan attack. As primary actors in a troubled economy, they no longer are above the fray.

•Email: kcarmichael@postmedia.com | CarmichaelKevin

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