Tiff Macklem needed to send a message on Wednesday.
Like other developed market central bank governors, Macklem is behind the curve on inflation and needs to catch up. But he’s also the subject of hyperbolic ridicule from would-be Trudeau challenger Pierre Poilievre, who’s keen to exploit Canada’s inflation fight for political gain.
Poilievre has variously (and unironically) accused Macklem of politicizing monetary policy and serving as an “ATM” for the Trudeau government, which he says suffers from an “insatiable spending appetite.” In 2020, Poilievre warned Conservatives would hold Macklem “to the same level of accountability as other political entities” if the Bank of Canada insisted on “getting more and more political.” One issue was the BoC’s QE program, which the bank is currently in the process of unwinding.
Poilievre is a Bitcoin fan, and has promised to ban the BoC from introducing a digital currency if elected prime minister. In an April 22 tweet, he chided the central bank for badmouthing crypto. “This from the same people who promised we’d have ‘deflation’ right before inflation hit a 30-year high,” he wrote, before calling the BoC (and, by extension, Macklem) “financially illiterate.”
Last month, Poilievre told an audience in Alberta he’d fire Macklem if he were in charge. “Money-printing government deficits have caused more dollars chasing fewer goods, driving higher prices,” he said, during a party leadership debate. Among Poilievre’s other promises: Making Canada “the freest country on Earth” and doing away (figuratively, one hopes) with so-called “gatekeepers,” a loosely-defined cabal comprised of “the consulting class, politicians, bureaucrats or agencies.” As Politico gingerly noted, “Macklem is seemingly gatekeeper enemy No. 1.”
On Wednesday, “gatekeeper” Macklem delivered a second consecutive 50bps rate hike (figure below).
In the statement, the bank cited the usual factors for inflation, including (obviously) the war and China’s latest lockdowns. “As pervasive input price pressures feed through into consumer prices, inflation continues to broaden,” the bank said, noting that “almost 70% of CPI categories now show inflation above 3%.” Policymakers readily conceded that “the risk of elevated inflation becoming entrenched has risen.”
50bps increments are becoming the standard for developed markets. That’s only slightly an exaggeration. Late last month, New Zealand delivered a second straight 50bps move and the Fed is widely seen hiking 50bps at both its June and July meetings. There’s even chatter that the ECB might take a chance on a jumbo interval over the summer, although that’s still an out-of-consensus view.
In any case, it was the last line in the BoC statement that grabbed attention. “The Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the 2% inflation target,” it read.
To be sure, the prospect of even larger increments isn’t news (some suggested the bank might’ve braved such a broadside on Wednesday), but it cements the case for an ongoing assault on inflation and could have a signaling effect for other central banks, with the caveat that it’s “just Canada,” so to speak.
“The Bank appears to be signaling that it is prepared to continue moving in 50bps increments into the fall, or to move firmly into restrictive territory (or both) if the inflation backdrop doesn’t improve,” TD’s Andrew Kelvin wrote. “We think the Bank’s decision to highlight the risk of inflation expectations becoming unanchored was significant, as higher inflation expectations may prompt a more punitive tightening cycle.”
“More forcefully to me could well mean faster than 50,” Bank of Nova Scotia’s Derek Holt told Bloomberg, in an email.
If you’re wondering whether Macklem’s aggressively hawkish posturing did anything to placate Poilievre, the answer is “no.”
“Bank of Canada slaps second oversized interest rate hike,” he tweeted. “Everyday people now forced to pay thousands more for Trudeau’s debt and their own mortgages.”
Remember: When you’re a populist, you don’t have to be coherent, let alone consistent.