Pierre Poilievre threatens to fire Tiff Macklem: what you need to know

The Tory frontrunner goes after the head of the Bank of Canada. Kevin Carmichael offers some history and perspective

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Pierre Poilievre, the alleged frontrunner in the race to lead the conservatives and become head of the opposition, stepped up his criticism of the Bank of Canada, saying he would fire Governor Tiff Macklem if he becomes prime minister. Here’s what you need to know.

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Why the fuss?

Here’s what Poilievre, MP for Carleton, an equestrian center on the outskirts of Ottawa, said he would do to Macklem during a debate with the other leadership candidates in Edmonton on May 11: “I would replace him with a new governor who will restore our mandate for low inflation, protect the purchasing power of our dollar and honor the working people who earned those dollars.”

Later in the debate, the 42-year-old career politician used the F-word: “I will fire the central bank governor to get inflation under control.”

That’s unusual, as there’s a code in Ottawa that says aloof Crown companies, especially the central bank, should be spared that degree of political attack, as it undermines confidence that technocrats will be left alone to do their jobs. without interference from elected officials.

Does it matter?

Not in some ways. To fulfill his threat, Poilievre will first have to win the leader’s vote on September 10. He would then have to win the next federal election, which likely won’t take place until the fall of 2025 if the liberal minority government and New Democratic Party stay true to their power-sharing agreement. By then, it may be time to start looking for a new governor, no matter who heads the prime minister’s office. Macklem’s seven-year term ends in June 2027.

However, the threat from Poilievre comes at a delicate time for the Bank of Canada. Macklem admitted last month that he and his deputies had misjudged the strength of inflation, meaning they probably left interest rates too low for too long. The consumer price index rose 6.7 percent in March from a year earlier, one of the fastest growth rates since the early 1980s. The Bank of Canada’s primary mission is to increase the consumer price index at a year-over-year rate of about two percent.

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Central banks are in a similar predicament almost everywhere, but that excuse probably only goes so far with a public that has made its distaste for inflation very clear to pollsters. The Bank of Canada has a credibility problem that is unlikely to be resolved until it lowers the cost of living, which Macklem has promised to do. He raised the benchmark rate by a quarter of a point on March 2, by half a point on April 13, and has pretty much said that there will be another half point hike on June 1. That would advance the key interest rate to 1.5 percent. this summer. He has also said he is willing to push the rate above three percent if necessary to take the heat out of prices.

Which brings us back to Poilievre, who is backed by 53 members of the conservative caucus, compared to Jean Charest’s 13 statements of support.

To some extent, controlling inflation is a matter of psychology: if we trust the Bank of Canada to bring inflation down to two percent, we probably won’t push for seven or eight percent cost-of-living adjustments. . Poilievre is actively undermining confidence in the central bank’s ability to carry out its mission. He has the unique ability to sow doubt because he has captured the imagination of the mainstream press, much like Donald Trump did on his way to the White House. That means his words are reinforced regularly. At the same time, Poilievre is more than capable of getting his message out on his own: he has nearly 371,000 Twitter followers and tens of thousands of people watch his YouTube videos.

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Is this new?

The Bank of Canada has been here before. James Coyne, who served as governor from 1955 to 1961, resigned amid political and personal conflict with former Prime Minister John Diefenbaker. That episode led to the rewrite of the Bank of Canada Act, as Coyne’s successor, Louis Rasminsky, pushed for clear guidelines that would leave the central bank alone to manage day-to-day monetary policy. Diefenbaker rewrote the law to state that if the government disagreed with monetary policy, it would issue a formal directive on what it wanted the central bank to do. If the governor ever disagrees, it’s clear that he or she will resign.

More recently, another career politician, Jean Chrétien, has been highly critical of Bank of Canada governor John Crow on his way to winning the 1993 election for the Liberals. Crow favored zero inflation, and the high interest rates necessary for that approach to monetary policy stifled economic growth. Chrétien, however, never intended to fire Crow, at least according to Paul Martin. “John Crow symbolized monetary fairness for the markets, so I wanted him to stay,” Martin, Chrétien’s chief finance minister, wrote in his political memoir. “Jean Chrétien wanted him to stay for the same reason, despite having been very critical of him when we were in the opposition. Letting him go, we thought, would be a major blot on our economic writing before we had even begun.

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Crow’s term was to be extended a few months after the Liberals were elected in November. Martin wrote that he wanted an inflation target of about two percent, while Crow insisted the target should be closer to zero. Martin instead appointed Gordon Thiessen, Crow’s deputy.

What is Poilièvre’s problem?

Poilievre, a longtime member of the House finance committee, tends to take an orthodox approach to economics. He dislikes quantitative easing (QE), an aggressive approach to monetary policy in which central banks create money to buy financial assets, usually government bonds, because they often serve as a benchmark for other assets. The Bank of Canada, along with many other central banks, has deployed QE during the COVID-19 recession after cutting key rates to nearly zero. Poilievre accused the Bank of Canada of being the federal government’s “ATM.”

Poilievre’s critique of QE is based on the principle that more money chasing fewer goods is necessarily inflationary. Ten years ago, however, QE didn’t cause runaway inflation as central banks in the United States and Europe aggressively used it to reverse the Great Recession. Decades ago, central bankers usually stopped worrying about the money supply, and some economists, including former Bank of Canada governor Stephen Poloz, are skeptical that QE does much more than signal bond traders where interest rates are headed.

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The current burst of inflation could lead to a rethinking of the role money creation plays in the economy, but any criticism that puts the blame for inflation on central banks overstates their role, as most of the price pressures stem from supply constraints associated with related to the pandemic and the rise in commodity prices associated with the Russian invasion of Ukraine.

“It has to be said and repeated: This current round of inflation, this latest surge, has nothing to do with what the BoC implemented two years ago,” said Bay Street economist David Rosenberg, founder of Rosenberg Research in Toronto. “It’s completely ridiculous.”

Here’s what the Bank of Canada has to say: “It is not the bank’s role to comment on political debates,” said Paul Badertscher, director of media relations at the Bank of Canada. “Governor Macklem was appointed to the board by the Board of Directors of the Bank of Canada with the approval of the Governor for a term of seven years, and his term runs until June 2027.”

What now?

We are waiting. The Bank of Canada’s most recent forecast predicts that inflation will be back to 2.4 percent by the end of 2024, suggesting that if Poilievre cares about getting the cost of living under control, he may have his wish years before. he will get the chance to fire. mac clamp.

Poilievre must also win the leadership race. Things are looking good for him now, based on the number of elected Conservatives he has recruited to his side, the relatively large crowds that consistently show up at his events, and the buzz his candidacy is generating in the media. However, his lead is much smaller by another important measure: money. Poilievre has raised about $545,000, compared to Charest’s $490,000. The race is not over yet.

• Email: [email protected] | Twitter: carmichaelkevin

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