There’s no doubt that the BOC’s standing has taken a bit of a beating. The BOC is now openly being criticized by politicians (largely on the right wing of the spectrum), and by some in the media and in the financial world. From the start of COVID, Tembo was thoughtful of the inflation implications of post-pandemic spending. We also were openly skeptical of the BOC’s claims that any inflation would be transitory. We wrote repeatedly about the inflationary potential of the enormous sums spent to fight COVID and of the dislocation to supply chains around the world. We are now monitoring media reports of the potential for BOC Governor Macklem to embark on extra high rate hikes to taper inflation faster and to compensate for the very late increase in rates we’re now seeing. Tembo also repeatedly wrote on the big gap in the BOC avoiding raising rates in early 2022 despite inflation going up month after month in late winter and early Spring.
There are now whispers that the BOC is firmly committed to going ahead with three consecutive half-percentage-point hikes over a three-month span. The first of which as we know came in mid-April, with most expecting the second one set for early June, and with a third likely due in the first half of July. To the BOC’s credit, it has acknowledged that it was off. Recently, Deputy Governor Carolyn Rogers went further: “Tough questions, added scrutiny and informed debate are entirely appropriate in the current environment.” We also have to be cognizant of the influence the federal government has over the Bank of Canada, and they appear to be increasing that influence and imposing more of their power over the institution. The BOC has increasingly been weighing the importance of maintaining maximum employment and fighting climate change – and many feel that this has been directed on the institution by the Federal Treasurer Chrystia Freeland.
Federal Conservative Leadership Candidate Pierre Poilievre took a lot of flak but also got a ton of media attention by saying he would fire Tiff Macklem if he ever became Prime Minister. Poilievre has repeatedly said that Macklem is a weak Governor of the BOC who is completely submissive to the Federal Liberals and that he lacks independence. Poilievre has repeatedly cited that the federal government created the inflation problem through $400 billion in pandemic stimulus, and that Macklem facilitated this by buying up government bonds and keeping the BOC “accommodative” to big spending agendas. Poilievre’s comments were the strongest criticism of the BOC or a BOC Governor in Canadian federal political history. This all rests on how the Canadian economy and housing market fare over the next while. Too rapid a rise in rates could kick start a recession or a housing market freeze – or both. Stagflation would be devastating to the BOC and to the federal government politically. At the end of the day, no one wants to be blamed for messing around with the golden goose.