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The Bank of Canada building in Ottawa on May 23, 2017.Chris Wattie/Reuters

Call it a central banker’s chagrin.

It’s been nearly a year since the Bank of Canada began its first foray into quantitative easing by launching a costly government bond purchase program to counteract the economic fallout from the COVID-19 pandemic. The central bank is spending about $4-billion a week and now controls almost 40 per cent of the market for Government of Canada bonds.

Sure, quantitative easing has stabilized credit markets and continues to stimulate the economy. But the side effects of this exotic economic elixir, when coupled with the central bank’s promise to maintain a rock-bottom policy interest rate, are asset bubbles – including rollicking stock markets and rip-roaring housing prices in some regions that widen the gap between rich and poor.

It’s a sticky situation. Bank Governor Tiff Macklem has spent months warning that rising inequality with respect to jobs and incomes threatens the economic recovery. The central bank repeated that concern in its policy-rate announcement last Wednesday, even as it noted the Canadian economy “is proving to be more resilient than anticipated” during the pandemic’s second wave.

“The labour market is a long way from recovery, with employment still well below pre-COVID levels,” the bank said. “Low-wage workers, young people and women have borne the brunt of the job losses.”

Mr. Macklem is rightly advocating for economic inclusion, or a “shared recovery,” that benefits society as a whole, but there’s only so much the Bank of Canada can do to achieve that goal. As frustrating as it must be for him and other central bankers, monetary policy isn’t a cure-all.

The Bank of Canada is already doing its part by maintaining low interest rates for the foreseeable future to encourage job creation, and hinting it might wait for a lower unemployment rate than in past decades before it starts fretting about inflation.

Although such moves are intended to foster labour market inclusion, the Bank of Canada is helpless to directly tackle asset bubbles and the resulting inequality that is fuelled by its ultra-easy lower-for-longer position. Here’s the rub: If the central bank were to prematurely cut back on quantitative easing or raise its benchmark interest rate too soon, it would foil efforts to get vulnerable people back to work.

This conundrum is why the federal government must take up the torch and double down on fiscal policy – government spending and taxation – in its forthcoming budget if it’s serious about eliminating inequality in Canada.

Inclusive economic growth must be intentionally created by fiscal policy. Not only has the pandemic exposed weaknesses in our social safety net, but the Bank of Canada is warning that we are not going back to the same economy we had before this crisis.

Lockdown or not, some jobs are gone for good. Those workers, though, still matter.

“We are watching in real time the handoff from monetary policy to fiscal policy,” said Armine Yalnizyan, an economist, Atkinson Fellow on the Future of Workers and a member of the federal government’s task force on women in the economy.

“That opportunity to actually deliver on inclusive growth is staring at us through the window,” she added.

As she points out, central bankers and mainstream institutions such as the International Monetary Fund, World Bank and The Organisation for Economic Co-operation and Development (OECD) have been urging governments around the world for more than a decade to take fiscal action to address growing inequities.

Last Thursday, the OECD unveiled its vision for an inclusive Canadian recovery from the COVID-19 crisis. It should surprise no one that its recommendations include tackling socio-economic inequalities that hurt the working poor, young people, women, ethnic minorities and Indigenous peoples, while also addressing deficiencies in long-term care, health policy, affordable housing and childcare.

Also last week, Finance Minister Chrystia Freeland offered more soundbites about the importance of early learning and child care, but it remains to be seen what specific actions she plans to take on this and other pressing issues in the yet-to-be scheduled federal budget.

“Talk is cheap and the budget will be expensive. We’ll see how they spend the money,” Ms. Yalnizyan said.

Even though the federal government has created emergency programs to prop up incomes during this crisis, it must do more heavy lifting to create economic inclusion from here on out.

Mr. Macklem is justifiably concerned about inequality, but his monetary policy toolkit won’t solve it. The Bank of Canada alone can’t create inclusive growth.

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