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Bank of Canada Governor Tiff Macklem at the Bank of Canada in Ottawa on June 22, 2020.Sean Kilpatrick/The Canadian Press

Bank of Canada Governor Tiff Macklem warned that the spectre of rising inequality in employment and incomes poses the biggest threat to a healthy, broad-based recovery from the COVID-19 crisis, as the economy stages what he called an “uneven” rebound from its pandemic lows.

In a speech via video-conference to the Canadian Chamber of Commerce on Thursday, Mr. Macklem said that the nature of the pandemic, which put the most strain of sectors of the economy that require close contact between people, has meant disproportionate job losses for women, 15- to 24-year-olds, low-income workers, visible minorities and Indigenous Canadians.

And while he called it “encouraging” that the economy has quickly recouped nearly two million of the three million jobs lost to the pandemic, he cautioned that job gains could prove much harder to come by in what he calls the “recuperation phase” of the recovery.

“It’s probably going to take longer to recover that million jobs than it took to get the first two million back,” he said in a question-and-answer period with the audience after his formal remarks.

In his speech, Mr. Macklem said the federal government’s Canadian Emergency Response Benefit has done a good job replacing the lost incomes for these most-affected groups. But he said the risk is that many of these workers will suffer permanent job losses – which would not only hurt these individuals, but would threaten to weigh down the economy more generally.

“The lost jobs for women, youth and low-wage workers is a problem for us all. If these workers become discouraged and leave the labour force or lose valuable skills over time, their reduced economic participation will lower our potential growth, limiting living standards for everyone,” he said.

Mr. Macklem’s speech came one day after the Bank of Canada issued its latest monetary policy decision, in which it opted to hold its key interest rate at a record low 0.25 per cent. It also maintained its government bond-buying programs, although it indicated that it may adjust those purchases as the economic recovery unfolds. The speech served as the bank’s regular postdecision update on its economic outlook.

While the bank acknowledged that the rebound from the crisis has been faster than it expected, substantial worries remain for Mr. Macklem and his colleagues, who are decidedly cautious about the prospects beyond the initial bounceback.

“The pandemic put us in a very deep hole, and we still have a long climb ahead,” Mr. Macklem said. “For some sectors, the hole was deeper, and the climb back will take longer.”

He said business confidence and investment remain “subdued,” and that uncertainty surrounding the pandemic “will continue to retain the economy, particularly in sector that involve close contact.”

Mr. Macklem acknowledged monetary policy is ill-suited to targeting specific industries or segments of the work force. But he argued that it plays an important role in setting the conditions for a broad recovery that can give everyone the best chance to succeed.

“You can think of monetary stimulus and the recovery like the tide coming in,” he told reporters. “When the tide comes in, that creates conditions for all boats to rise. Some boats have leaks, they’re going to take on water. Some boats aren’t even in the water. But when the tide comes in, it creates the conditions for all boats to rise. That’s what monetary stimulus does.”

“Our message to Canadians is, this recovery is off to a strong start, we’ve seen some encouraging numbers, but we still still have a long climb back, and we expect the pace of recovery is going to start to slow. We’re going to be there, creating the conditions for all boats to rise, through the full length of this recovery.”

In response to media questions, Mr. Macklem elaborated on what the bank meant in Wednesday’s rate-decision statement when it stated that its continuing program of large-scale purchases of government bonds – a monetary policy known as quantitative easing – would be “calibrated” to provide the appropriate stimulus as the economic recovery evolves. He said this wasn’t meant to signal that the bank was preparing to scale back the program, under which it has pledged to buy at least $5-billion a week of Canadian government bonds on the open market.

“It’s really very premature to start talking about an exit; that’s some ways off,” he said.

“When we say we’re going to be ‘calibrating’ going forward, what that means is that we will be assessing what to buy, as well as how much to buy. Could be more, could be less.”

He said the bank has already been adjusting those bond purchases as the economy has moved from virus-containment to reopening, and the bank’s focus has shifted from restoring market function to providing stimulus. He said the bank has been focusing more of its buying on bond maturities in the two- to 10-year range, to help dampen interest rates in the time frames that businesses and households typically borrow.

He reiterated that the bank will continue the program “until the recovery is well underway.”

“The recovery is further underway than it was back in July, but we still have a long way to go,” he said.

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