I wrote a piece in The Globe and Mail on this just this week, so perhaps I'll jump in.
The answer to your question is very much dependent on what kind of time frame we're talking about. I think the central banks have had a tough time even hitting their inflation targets over the past decade. I'll call them tactical errors: misreading the strength of the economy and perhaps being too quick to raise their short-term interest rates because they thought the economy was doing better than it was. We saw generally around the world this failure to hit inflation targets.
As I look at the longer term, and particularly when I look at what's happening in the United States, I feel a little differently. Central banks are buying huge amounts of these government debts that are being issued. Here in Canada, as you know, the Bank of Canada has a commitment to keep buying at least $4 billion per week. The Fed, similarly, is absorbing large amounts of U.S. government debt.
What happens when the central bank gets to the point where they see inflation back on target, back where they want it, and they stop absorbing that debt? We've been there in the past. When the federal government had its fiscal problems in the 1990s, I remember that a lot of people said that the Bank of Canada should be buying more debt and getting those interest rates down to make the fiscal challenge easier to meet.
We didn't go that way, ultimately, but that was because the memory of inflation—when you did have too much debt being monetized by the central bank—was so fresh. People hate inflation when they actually experience it. I do worry as we look out over the longer term that we might be on that road. It would very much reassure me, particularly in the United States—not just in Canada—if I saw the federal government there willing to match its revenues and its expenditures more closely and stop relying on the central bank to buy so much of its debt.