Bank of Canada governor Tiff Macklem told the House of Commons finance committee on Wednesday that the economy would likely be faring better if the Liberal government had clamped down on Covid-19 pandemic stimulus earlier.
While speaking alongside senior deputy governor Carolyn Rogers, Macklem admitted that the central bank should have tightened interest rates and eased off on stimulus policy.
“If we knew everything a year ago that we knew today, yes I think we should have started tightening interest rates sooner to withdraw the stimulus,” said Macklem.
“(If) there would have been less stimulus in the economy, there would have been less demand, (inflation) would have been less.”
“Policies aimed at mitigating the effects of inflation on citizens really need to be targeted, targeted on the most vulnerable, and temporary, temporary while this is an inflation problem,” he continued.
Macklem also called for a “thorough review” of the bank’s handling of inflation once inflation goes down to a 2% target.
“When we get inflation all back down to 2%, I do think we’ll have to have a thorough review of how all our tools worked through this pandemic,” said Macklem.
“I’m not saying we got everything right. We didn’t get everything right. I do think we got a lot of things right and we have some lessons to learn.”
In September, economists warned that Prime Minister Justin Trudeau’s hefty spending announcements will worsen the inflation crisis.
“We’re not going to deny that there are households seriously in need of help right now in this inflationary environment. But, from a policy perspective, we all know that sending out money as an inflation-support measure is inherently … inflationary,” said BMO senior economist Robert Kavcic.
On Tuesday, Conservative leader Pierre Poilievre blasted the Trudeau government for running “inflationary deficits” while Canadians struggle.
“This government told Canadians that interest rates would stay low for a long time. As a result, one-third of the mortgages currently taken out by Canadians are variable rate. This means that when interest rates rise, Canadians either pay more or the term of their mortgage increases,” said Poilievre in the House of Commons.
“According to the Bank of Canada, this is going to cause financial hardship for many families. The government is driving up interest rates with its inflationary deficits.”