Op-Eds
Periods when inflation is low and few people are paying attention to central banking are happy times.
In Canada, these are not happy times. Inflation is high and the Bank of Canada is under scrutiny. Unhappiness will increase as the bank increases its policy interest rate to get inflation back to its 2-per-cent target, because tighter monetary policy will pinch consumers and businesses before it reduces inflation.
That poses risks – notably that politics will interfere with monetary policy. Since politicians don’t like monetary-policy pinches, interference could result in inflation staying higher for longer. Odd as it may seem when the Bank of Canada has already let inflation get so far above target, continuing to protect…
With inflation on the rise, the Bank of Canada kicked its tightening cycle into high gear Wednesday by announcing a 50-basis-point increase in its target for the overnight rate — the first non-25-basis-point hike in over 20 years. It also modified its stance concerning its over-sized holdings of Government of Canada bonds, which swelled its balance sheet during so-called Quantitative Easing (QE). Those days are over: it will now initiate Quantitative Tightening, or QT, by not replacing bonds on its balance sheet as they mature, thus reducing its bond holdings over time.
Some might be disappointed the bank didn’t go further on QT by announcing it would actually start selling its holdings of government bonds. Not to worry.…
People have many happy expectations of cryptocurrencies as they look for ways to conduct their financial affairs outside the traditional financial system. They hope that, as crypto and its supporting blockchain technology mature, there will eventually be no delays in settling their transactions, cheaper cross-border transactions and no pesky fees on bank accounts, among other advantages.
Many also imagine that crypto assets can protect them from rising inflation. That, however, is one benefit crypto assets do not offer.
Crypto assets such as bitcoin and ethereum and their decentralized blockchain technology offer the promise that, at some point in the future, it may be possible to price goods and services and have one’s…
With inflation pushing 6 per cent, and federal debt up about half-a-trillion dollars in two years, Canadian macroeconomic policy is a mess. It will get worse. The Bank of Canada is moving to get inflation down – applying the brakes. The federal government’s budget this week will show tens of billions more borrowing and spending – foot firmly on the gas. Monetary tightening and fiscal excess prefigure a wild economic ride ahead. Perhaps a recession.
Saying “recession” might seem alarmist. The economy is on a tear. Employment is well above, and unemployment well below, where they were pre-COVID. Economywide spending rose an eye-popping 12 per cent over the past year.
The problem, though, is that this surge owes so much to…
What explains surging inflation in Canada and many other advanced economies? Most commentators — correctly — blame loose monetary policy. That contrasts with the 1970s and 1980s, when many people argued inflation was not something central banks could control and that tight money was therefore a case of pain for no gain. With the Bank of Canada and other central banks beginning to tighten, those arguments may return. If they prevail, monetary policy will stay too loose and inflation will keep raging.
Inflation is another term for a persistent decline in the value of money, which like most values is determined by supply and demand. If the Bank of Canada promotes growth in the supply of Canadian dollars that exceeds growth in the…
