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Governor of the Bank of Canada Tiff Macklem and Minister of Finance Chrystia Freeland listen to a question during a joint news conference in Ottawa, on Dec. 13, 2021.Justin Tang/The Canadian Press

The first thing to be said about Monday’s joint statement by the Bank of Canada and Finance Department on the central bank’s newish mandate is that it suffers from verbal inflation.

The agreement to maintain the bank’s 2-per-cent inflation, with the added wrinkle of supporting “maximum sustainable employment,” comes in at 873 words. That compares with the 502 words it took to lay out the bank’s mission in 2016, when its mandate was last renewed. That’s a 74-per-cent increase in five years.

The 2016 agreement was clear and concise. It left little room for ambiguity. Over the course of a quarter-century, it noted, inflation-targeting had proved its worth, providing “a more stable economic environment in which Canadians can plan their investment and spending decisions.” It emphasized that low and stable inflation “preserves confidence in the value of money.”

The agreement unveiled Monday by Finance Minister Chrystia Freeland and Bank of Canada Governor Tiff Macklem refers to neither investment nor the Canadian currency’s worth. And while it starts out by reaffirming the bank’s principal focus on price stability, it contains several paragraphs of confusing verbiage that risk leaving markets guessing about the bank’s true objectives.

It says that “monetary policy should continue to support maximum sustainable employment,” while admitting the latter is “not directly measurable and is determined largely by non-monetary forces.” Indeed, it concedes that “demographics, technological change, globalization and changes in the nature of work” are making it harder than ever to figure out whether there is too much, or too little, slack in the labour market.

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Yet, the agreement specifies that “the bank will continue to use the flexibility of the 1- to 3-per-cent [inflation] control range to actively seek the maximum sustainable level of employment when conditions warrant.”

Ms. Freeland, who held a joint press conference with Mr. Macklem to announce the changes, insisted that the new agreement merely “codifies” what the bank had already been doing. In that sense, the changes are not a radical departure from existing practice, in that the strength of the labour market is a critical factor in determining whether the bank meets its inflation target.

Mr. Macklem added that, with the annual inflation rate now running well beyond the target range, he is not about to experiment to find out how close the bank can push the economy to full employment. “With respect to this idea of actively seeking or probing for maximum sustainable employment, I want to underline that’s something you do when inflation is close to target and interest rates are at more normal levels. That’s not the situation we’re in right now.”

The new language surrounding the bank’s mandate appears, then, to be a response to political imperatives that have little to do with the conduct of monetary policy.

The Bank of Canada is as concerned as any institution with its public image and the need to maintain trust with Canadians, many of whom see it as insular and remote. Mr. Macklem has appeared particularly sensitive to this need, stressing the importance of “inclusive” growth, despite the bank’s inability to engineer specific labour market outcomes for disadvantaged groups of workers.

Similar moves have been afoot at central banks around the world, reflecting a heightened sensitivity to public opinion at a time when monetary policy has come under increased scrutiny for the role quantitative easing has played in exacerbating economic inequality.

The Bank of Canada, which embarked on QE for the first time at the onset of the COVID-19 pandemic, is no different in this respect.

The risk is that, in trying to appear responsive to public opinion by incorporating vague concepts such as maximum sustainable employment into its mandate, the bank creates expectations it cannot fulfill – or that it can only fulfill by squandering the solid inflation-fighting credentials it took so long to earn.

Besides, the bank already has enough on its hands.

Keeping inflation low and stable was a relatively easy endeavour as long as globalization ensured ever-cheaper imports of consumer durables from the developing world. But deglobalization is likely to reverse that trend.

The energy transition now under way is also likely to lead to more inflationary supply shocks on the road to net-zero carbon emissions in 2050, as new investment in fossil fuels dries up.

The irony here is the Bank of Canada and Trudeau government appear to be diluting the bank’s inflating-fighting mandate at a moment when more Canadians are complaining about rising prices than at any time in the past three decades. The new language surrounding the mandate sounds so 2019, when progressive politics was all the rage and inflation was far from anyone’s mind.

It’s almost as if Mr. Macklem and Ms. Freeland are still fighting the last (political) war.

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