Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Bank of Canada Governor Tiff Macklem last week provided a further illustration of the disturbing mission creep under way at the central bank by wading into the political debate over income inequality.

In his most revealing speech since taking over in June, Mr. Macklem indicated the central bank would pursue a more inclusive approach to monetary policy by considering not only aggregate economic outcomes but also redistributive ones, as well. “Striving for equality of opportunity is simply the right thing to do,” he said.

The speech coincided with the start of a year-long review of the central bank’s mandate and suggested that Mr. Macklem may recommend that Finance Minister Chrystia Freeland expand the Bank of Canada’s responsibilities. Since the 1990s, the bank’s mandate has mainly involved keeping inflation low and stable, at around 2 per cent, reflecting a consensus view that monetary policy works best by targeting the conditions conducive to investment and economic growth rather than targeting full employment.

Story continues below advertisement

Since the last recession, however, central banks across the developed world have faced increasing pressure from progressive politicians and economists to reconsider this approach. The debate has been fuelled by a recognition that central banks may have contributed to wealth disparities in recent years with policies such as quantitative easing or QE, which involves large-scale central bank purchases of government bonds and other debt securities in order to drive down long-term interest rates.

One of the effects of QE has been to send investors piling into the stock market. And that has made the already rich much richer, since the wealthiest households have far larger stock portfolios than middle-class or poor ones. The Bank of Canada did not engage in QE after the last recession. But it has embraced the policy wholesale since the pandemic struck, buying up billions of dollars worth of government debt since March.

“It is true that QE works through many channels, including financial portfolios, that may boost wealth inequality,” Mr. Macklem conceded in his speech. “But as research on the experience with QE in the United States and the euro area highlights, QE can also reduce income inequality. That’s because lower borrowing costs stimulate economic activity, which in turn boosts jobs and incomes, particularly for people with lower incomes.”

Still, while defending the bank’s embrace of QE, most of Mr. Macklem’s speech sounded like it could have been written by the folks at the Canadian Centre for Policy Alternatives. The left-leaning, Ottawa-based think tank has been arguing for “an ambitious extension” of the Bank of Canada’s mandate to achieve a broad array of policy goals that include everything from decarbonizing the economy to preserving public services.

While there are valid reasons for Mr. Macklem to point out that the impact of the pandemic-led downturn has disproportionately fallen on women, low-wage workers and minorities, fixing the problem is beyond the Bank of Canada’s ability or purpose.

Setting specific redistributive goals for society is best left to the politicians who control fiscal policy. Unlike monetary policy, government spending and taxation can operate on both the macroeconomic and microeconomic levels. Monetary policy is not so nimble.

Mr. Macklem knows this. But it’s hard not to get the impression that he, like his counterpart in the United States, is increasingly resigned to having to play politics.

Story continues below advertisement

Federal Reserve chairman Jerome Powell last month said the U.S. central bank would adopt a more “flexible” approach toward inflation, allowing the annual rate to overshoot the official 2-per-cent target, signalling it would tolerate higher inflation in exchange for higher job growth.

Some Fed watchers interpreted the move as an effort to pre-empt even more drastic changes to the way the central bank operates to reduce inequality. Democratic presidential nominee Joe Biden, for instance, supports legislation that would direct the central bank to “aggressively target persistent racial gaps in jobs, wages and wealth.”

Mr. Powell’s announcement on the Fed’s newly flexible approach to inflation followed consultations (held under its Fed Listens initiative) aimed at assessing public opinion. “The stories we heard at Fed Listens events became a potent vehicle for us to connect with the people and communities that our policies are intended to benefit,” he noted.

The Bank of Canada last month launched its own consultation effort, dubbed Let’s Talk Inflation. Echoing Mr. Powell, Mr. Macklem said he wants Canadians to “tell us how changes in the economy are affecting them and their communities.”

The entire exercise appears largely aimed at softening the bank’s image at a time when most entrenched institutions – from the courts, to the police to central banks – face charges of perpetuating inequalities in society. If central banks are to protect their legitimacy, the thinking goes, they must be seen to be responding to such charges.

It would be dangerous for the central bank to try to win a popularity contest, however. The Bank of Canada operates independently from the government precisely to insulate it from political pressure. Mr. Macklem should not do anything to jeopardize that.

Story continues below advertisement

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies