Pierre Poilièvre, by targeting the Bank of Canada and its governor Tiff Macklem, applies a recipe already used by Donald Trump. One of the great popular successes of the former president of the United States was to go after Jerome Powell, the chairman of the Federal Reserve whom he had appointed himself.
He called him incompetent, he said he lacked vision, and he wondered if the Fed chairman was a bigger enemy to his country than China. Why did he do this? For the simple reason that he disagreed with his monetary policy.
He wanted to see the Federal Reserve stop raising interest rates in 2018, or even lower them. Donald Trump has raised the possibility of firing Jerome Powell. Remember, the president was promising economic growth of 4, 5 or 6% and lowering rates was a way to boost the rise in the STARTdespite the imperatives of the central bank’s monetary policy, which are to control inflation to 2% and seek full employment.
Pierre Poilièvre follows in the footsteps of 45e President of the United States by announcing that he would fire Tiff Macklem if he became Prime Minister and that he would appoint a person who would return to a monetary policy centered on low inflation.
In Turkey, President Recep Tayyip Erdogan demanded a drop in interest rates from his central bank to stimulate his economy despite skyrocketing inflation. The key rate was lowered from 19% to 14% last fall and inflation is now at 70%.
The Turkish central bank is handcuffed: the country’s president does not want a rate hike and threatens to fire the governor if he does not apply his directives.
Tiff Macklem’s work is criticized
Of course, we are not in this situation in Canada. Inflation is approaching 7%, but the economy is doing well. Economic growth is strong, the unemployment rate has never been so low, a good portion of Canadians have been able to save money during the pandemic and demand is still on the rise.
Certainly the work of Tiff Macklem, like that of Jerome Powell in the United States or other central banks around the world, is being criticized these days by economists who argue that central bankers have waited too long before raising interest rate. Governor Macklem, for example, is criticized for having been slow to recognize that inflation was not temporary and that monetary tightening should have started well before 2022.
The bank acknowledges some mistakes, by the way. Deputy Governor Carolyn Rogers devoted an entire speech on May 3 in Toronto to the importance of the central bank maintaining public confidence in its actions.
We are fully aware
she explained,that due to extraordinary measures taken during the pandemic and inflation that is well above target, some are wondering if they can really trust us.
It is absolutely essential to maintain the confidence of Canadians in the most important institutions of the country. The central bank must do this work to consolidate or regain public confidence, just like the government.
The central bank, “automated teller machine”?
The candidate Pierre Poilièvre chose to go in the opposite direction. For strategic political reasons or because he is sincerely convinced of it, he attacks the credibility of the central bank and its governor, and announces that he will dismiss him if he becomes prime minister. He accuses the bank of having been the ATM
of the government during the pandemic and to pursue a policy that does not allow inflation to be mitigated.
In fact, the central bank bought back most of the government bonds issued in the first months of the pandemic, debt securities created to finance government support programs for the population.
It is legitimate to question the generosity of government programs during the pandemic. But the central bank did what other central banks around the world, especially in the United States, did. When the economy came to a standstill in 2020, action had to be taken.
Canada has spent a lot of money during the pandemic and its debt has increased. It is normal to question the government’s choices during this period. But it is important to remember that Canada remains the least indebted country in the G7 and that it has maintained its AAA rating with three credit agencies.
We should add that the dismissal of the governor of the central bank because the prime minister does not agree with monetary policy could have devastating consequences on Canada’s image, its stability and its attractiveness for investors.
The bank’s mandate has not changed
Second, the Bank of Canada’s mandate has not changed. It is not necessary to reduce it to low inflation, as Pierre Poilièvre proposes, since this is already the case. The bank is targeting an inflation rate of 2%, within a range of 1% to 3%. This mandate was recently renewed.
To bring down inflation, the bank’s current policy calls for a marked increase in interest rates and the end of the renewal of the government bond assets that the institution holds.
Once again, criticizing the central bank in its management of inflation is legitimate. But we must take the time to explain that the supply chains have been scrambled for two years, even more with the strict confinements in China. The war also adds strong inflationary pressure on grain and fuel.
As Sylvain Leduc, Vice Chairman of the San Francisco Federal Reserve, explained to Economy zone Thursday, predicting what was happening in supply chains was very difficult and predicting what is going to happen regarding the pandemic globally is difficult. We feel the effects of what is happening in China, we see it with the zero COVID policy which stops production, and it disrupts global production and inflation in the United States and Canada.
Misleading discourse on cryptocurrencies
Pierre Poilièvre also recently stated that cryptocurrencies represent a cure for inflation
. This statement is misleading. Volatility is extremely high on cryptocurrencies and their use remains marginal compared to the major currencies of the world.
Bitcoin is down 55% since last November, Dogecoin is down around 82% over the past year, Ethereum is down 45%, and the cryptocurrency Terra, like stablecoins
, has completely collapsed in the last few days, losing almost all of its value. This cryptocurrency was intended to be correlated to the US dollar. Looking for safe assets, investors stalled and Terra’s value evaporated.
Pierre Poilièvre also recently said this: We are going to give people the freedom, the LI-BER-TY to choose their own currency without the Bank of Canada being able to intervene to print money and devalue the currency.
This statement is also misleading. Over the past year, the Canadian dollar has fluctuated between 77 and 83 US cents, essentially between 77 and 80 US cents most of the time. The currency is not devalued by the work of the Bank of Canada. Other factors are at work, in particular the search by investors for safe assets, in US dollars, due to fears linked to inflation and the still low risks of recession.
Pierre Poilièvre’s objective is to win the leadership of the Conservative Party. But he can’t do that by dropping the most basic facts about central banks and cryptocurrencies.
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