The Bank of Canada’s unprecedented actions in response to the pandemic have helped hard-hit workers, but governor Tiff Macklem said Thursday that the measures may have increased economic inequality at the same time.
During a speech to students at Atlantic Canadian universities, Macklem said the central bank will take a look at its bond-buying programs and drop to its key policy rate to see if they have had unintended consequences.
The Bank of Canada’s bond-buying spree to snap up government debt has most recently been aimed at driving down interest rates charged on things like mortgages and business loans to prod spending.
Known as quantitative easing, Macklem noted it also comes with another effect: raising the value of assets in registered retirement savings plans, company pension plans, and other investment holdings.
That can benefit wealthy Canadians more than others, he noted.
Macklem said the central bank will study the program’s effects to understand how bank actions during the pandemic have affected income and wealth inequality.
As a broad tool, Macklem said he was confident it was helping to create jobs and get people back to work and helping drive a more inclusive economic recovery.
“It stimulates spending and gets people back to work, and that is the most important thing you can do to reduce inequality,” Macklem told a news conference following his speech.
It was about one year ago that Macklem was named the next governor of the Bank of Canada as the central bank was taking unprecedented policy actions to aid the economy.
Its key policy rate was lowered to 0.25%, where Macklem said it will stay until the economy is fully recovered and inflation is back at the bank’s 2% target zone.
The bank recently scaled back federal bond purchases and is winding down other purchasing facilities now that economic conditions are improving.
CIBC senior economist Royce Mendes said if Macklem thinks quantitative easing is adding to inequality, it might be among the reasons that the bank tapers purchases in the coming months.
Macklem said the rising tide has not lifted all boats.
Statistics Canada’s most recent jobs report showed the country was short about 503,100 jobs from pre-pandemic levels witnessed in February 2020, but suggested the gap may be larger —closer to 700,000 if the workforce was to keep pace with population growth.
Macklem said new graduates and mothers returning from parental leave, among others, have entered or re-entered the labour market through the course of the pandemic.
He said creating an inclusive economic recovery may not just be about getting the country back to where it was pre-pandemic, but creating more jobs and ensuring places for those hardest-hit.
In his speech, he pointed to high-contact service sectors like retail and restaurants whose output is almost 20% below pre-pandemic levels, just as the combined output of the rest of the economy is slightly above pre-pandemic levels.
“The pandemic makes fostering an inclusive economy more important than ever. We won’t fully heal the economy until we address these unequal impacts,” Macklem said in his speech.
“And rather than just trying to recover to where we were before the pandemic, maybe we can bring the economy to a better place for everyone.”
To do that, he suggested companies focus on hiring women, Indigenous people, racialized Canadians and people living with a disability who have borne the brunt of job losses.
Drawing those workers into the labour market can help companies make better decisions and boost the economy’s potential output through a cycle of more income followed by demand for goods and services.
He acknowledged the central bank has to do its part as well, noting the need to improve diversity at the senior ranks of the organization.
The bank’s governing council lost its lone woman late last year when Carolyn Wilkins stepped down as the senior deputy governor. The process to replace her has been underway for months, though Macklem wasn’t able to provide more specifics about the search.