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Bank of Canada Governor Tiff Macklem said he couldn’t predict another recession as the economy is “not going to play out exactly the way we forecast,” according to Blacklock’s Reporter.
The Senate banking committee on Wednesday asked Macklem to predict the likelihood of an upcoming recession in Canada.
“We don’t want to over-cool the economy but we don’t want it overheating and creating inflation,” said Macklem.
“It’s going to be a delicate balance.”
Sen. Pamela Wallin, chair of the banking committee, looked to England where Governor Andrew Bailey of the Bank of England has brought up concerns of a recession coming down the line.
On April 21, Bailey gave a speech to the Peterson Institute for International Economics in Washington, D.C., which Wallin referred to in the meeting.
“His phrase was, ‘We are walking a very tight line between tackling inflation and the output effects of the real income shock and the risk that could create a recession,’” said Wallin.
“What would you put that risk at?”
“I have no doubt things are not going to play out exactly the way we forecast, they never do,” replied Macklem.
“It’s going to be delicate. I share Governor Bailey’s view that assessing the balance between demand and supply is particularly hard.”
“Where is the war going to go?” said Macklem.
“How is COVID going to play out in China? These are fundamental uncertainties. On the spending side, we’ve never come out of a pandemic before.”
Macklem admitted to the failures when predicting inflation rates in a testimony on Monday at the Commons finance committee.
“We have been surprised,” he said.
The Bank had predicted inflation would only rise “close to 5%” or “almost 6% in the first half of 2022.”
The consumer price index for March was evaluated at 6.7%, a full percentage point higher than February’s figure.
It was the sharpest inflationary jump since the winter of 1991.
“What we know from history is if we don’t control inflation, if inflation expectations get unmoored, the most vulnerable members of our society are going to suffer the most in terms of higher costs of living,” said Macklem Wednesday.
“The other thing we know though is that nothing in the economy works very well – labour markets don’t work well – when inflation is high and variable.”
“Getting inflation back to target, keeping inflation expectations well anchored, is job one,” said Macklem.
“The economy is overheating. We need to cool growth and spending to cool inflation but we don’t want to over-cool the economy. What we want to do is we want to get that soft landing.”
The Bank has fixed an inflation target of 2%.
Current rates are costing Canadians an average $2,000 more annually, officials estimate.
Ewa Sudyk is a reporter with the Western Standard
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