Monetary policy has suddenly become a topic of debate in the federal election campaign – a muddled, misleading, ill-informed, incomprehensible debate.
Last week, reporters had the over-optimistic impulse to ask the leaders of the two top contending parties for their thoughts about this fall’s renewal of the Bank of Canada’s five-year agreement with the federal government, under which the central bank has a long-standing mandate to focus its monetary policy (primarily, interest rates) on a 2-per-cent inflation target. Their responses were a reminder why it’s probably a bad idea to ask our political leaders to weigh in on the central bank’s purview – much less invite the misdirection and hyperbole of an election campaign into the discussion.
In one corner, we have Liberal Leader Justin Trudeau, who stumbled badly in trying to duck the question in a midweek media conference.
“When I think about the biggest, most important economic policy that this government, if re-elected, would move forward, you’ll forgive me if I don’t think about monetary policy, you’ll understand that I think about families,” Mr. Trudeau said.
In one far too cavalier sentence, he came off sounding like he couldn’t care less about the country’s central bank, and its mandate to keep inflation low, stable and predictable. Don’t give it a second thought? Heck, I’ve barely given it a first!
In the other corner, we have Conservatives, who suddenly care too much. They depicted Mr. Trudeau’s willful ignorance as smoking-gun evidence that, either by neglect or design, his government has unleashed an inflation firestorm on Canadians, and will fiddle while our collective standard of living burns.
“Unlike Justin Trudeau, I’m concerned about monetary policy because I’m concerned about the housing crisis, the fact that hundreds of thousands of Canadians are having trouble keeping up with their bills, the rising costs, inflation near 20-year highs,” Tory Leader Erin O’Toole said, linking the notion of the central bank’s mandate to a rapid-fire list of voter fears that have, at best, a tangential link to the bank’s mandate renewal.
Meanwhile, popular Conservative economics lieutenant Pierre Poilievre – whose razor-sharp mind frequently takes a back seat to his lust for theatrics – warned his 156,000 Twitter followers that this was all part of a nefarious Trudeau plot to scrap the Bank of Canada’s 2-per-cent inflation target altogether if re-elected, and let inflation skyrocket to 12 per cent.
“Whaaaat? 12 per cent inflation?” one shocked Twitter follower asked.
Um, no. Not really. Settle down there, Chicken Little.
The reality is the Bank of Canada is approaching the finish line of a detailed review of its inflation-fighting mandate that it started literally years ago, and that has included heaps of research and considerable public consultation – a more thorough investigation into the matter than the bank has undertaken in decades. (The bank will present the result of the review, and its recommendations, for government approval before the end of this year.)
The bank has openly discussed some of the options it is investigating to fine-tune its approach to monetary policy – and none of them, obviously, include letting inflation run wild. Three years ago, the bank publicly dismissed from this review the notion of raising its inflation bar from 2 per cent.
Mr. Trudeau’s response, despite its remarkable clumsiness, certainly suggests his party has no interest in wading into the bank’s review process. That would be consistent with the long-standing tradition in this country of political non-interference in the central bank’s monetary matters. But to say he doesn’t much think about it – on the cusp of a historic rethink of the bank’s mandate, in an extraordinary moment in economic history in which many countries are pondering whether long-standing monetary policy needs a serious refresh – is flippancy bordering on irresponsibility.
The Conservatives’ reaction is no less irresponsible. It’s baseless fear-mongering. And frankly, Mr. O’Toole’s response didn’t sound like he’s been paying much more attention to the substance of this mandate review than Mr. Trudeau; he seems to have conflated the long-term guiding principles of monetary policy with the immediate fears surrounding this year’s spike in inflation.
Frankly, if your biggest concern is fighting inflation – now or at any other time – the bank’s mandate status quo, a singular focus on controlling inflation at a 2-per-cent target, sounds pretty darned good.
If I were a prime ministerial hopeful, this is the answer I would give to a question about the Bank of Canada’s mandate renewal: “The bank has invested a lot of time and resources into investigating the inflation-targeting regime and ways to improve upon it. We have confidence in that process, and we look forward to engaging with the bank when the time comes to discuss the best options. Anything that might improve on the bank’s ability to maintain low and stable inflation and foster economic success, we would welcome.
“But we do know that the government oversees powerful fiscal levers that can influence inflation over the near and longer term, and we intend to do our part with the policy tools that we have.”
Let’s have a substantive conversation on what the next government can do, with the fiscal powers in its hands, to aid the central bank’s inflation cause, now and over the next several years. Then we might be getting somewhere.
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