Tiff Macklem, a former second-in-command at the Bank of Canada, is returning to the central bank to take over the top job at a moment that he says cries out for bold, unprecedented responses to the economic crisis fuelled by COVID-19.
And he suggested that once the current storm passes, a key focus for the bank will be how climate change will shape the economy, productivity, spending, and ultimately prices.
But seated alongside the man he will replace, Stephen Poloz, and Finance Minister Bill Morneau, Macklem said there is a “need to try and overwhelm the crisis” to stabilize the economy and “restore confidence.”
So far, the central bank has slashed its target overnight interest rate to 0.25 per cent and started an unprecedented bond-purchasing program to fund federal fiscal stimulus that stands at over $146 billion.
All of that would qualify as “bold, unconventional policy responses” that embrace the idea that “you’ve got to think beyond the normal responses,” said Macklem, now the dean of the business school at the University of Toronto.
He cautioned against negative interest rates, calling them too disruptive for an already disrupted financial system, adding he was comfortable with 0.25 per cent being as low as the bank would go.
“It’s really critical that credit keep flowing, that (businesses) can borrow money to get them through this and a critical function of the Bank of Canada is to provide the liquidity to keep the financial system functioning,” Macklem said.
“As the restrictions are lifted, the economy will start to bounce back, it’s not going to be a snap back to normal. It’s going to be a phased approach, where this virus is going to be out there for some time and the Bank of Canada will play its role.”
The bank controls the country’s money supply, trying to support economic growth and stability while keeping inflation on target. As well, the governor’s statements about the economy and the financial system set trends and move markets.
RBC chief economist Craig Wright said Macklem’s mixed skill set of central banking and private sector experience should help him, as will his ability to communicate to a broad audience.
“He’s one of the few people who can spin a macroeconomic model in his head and communicate effectively to everyone,” Wright said in an interview.
“If you can’t communicate effectively, in terms of what you’re doing, what the implications are of your activity, then that makes for a lot of uncertainty and uncertainty is the enemy of investment whether you look at consumers, businesses or investors.”
Macklem was the No. 2 at the Bank of Canada just over a decade ago as Canada emerged from the global financial crisis. Claire Kennedy, who chaired the bank’s recruitment committee that recommended Macklem, said in a statement that background was part of the reason Macklem was tapped for the job.
Morneau said what the bank and government were looking for was “someone with the deep expertise and understanding not only of the Canadian economy, but the global economy and the current challenge.”
Coming out of the current challenge, Macklem will have to navigate rising government and household indebtedness as well as historically low interest rates, while overseeing decisions about digital currencies and renewing the bank’s inflation target framework, the Canadian Chamber of Commerce noted in a statement.
Macklem has taken an interest in recent years in the role of artificial intelligence in the economy, as well as climate change. Last year, he led a government-struck panel that recommended the creation of tax credits to encourage Canadians to put their retirement savings into climate-conscious investments.
“Climate change is a major force that’s going to be impacting the economy, like globalization, like technological change,” Macklem said Friday.
“We will be looking at climate change along with a host of other major economic forces acting on the economy to the extent that they affect inflation.”
By naming Macklem as the bank’s 10th governor, the government highlighted the need for “institutional stability” at the Bank of Canada, wrote CIBC chief economist Avery Shenfeld, and he is unlikely to represent a major change at the central bank.
Born in Montreal, Macklem was considered a top candidate to become governor in 2013, but was passed over when Poloz was appointed. Similarly, Carolyn Wilkins, the bank’s current senior deputy governor, was considered high on the list of successors when Poloz steps down from the job on June 2.
Poloz called leaving the his dream job as governor “bittersweet.”
“Every governor understands that you are a steward,” he said, “and handing over the reins to someone as capable as Tiff Macklem means the bank and its role in supporting Canadians is in solid hands.”