Evidence of meeting #161 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was rate.
A video is available from Parliament.
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
Thank you.
As you're thinking about your rate decisions, is this something that you take into account?
Senior Deputy Governor, Bank of Canada
We always think about how our rates affect Canadians and how they affect consumers. It's not a direct mathematical taking into account, but are we always thinking about the impact of our rate decisions on Canadians? Are we always thinking about—and we use the broad term—financial stability issues? We survey Canadians about their levels of financial stress and their expectations, so yes...absolutely.
Liberal
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
There was an article in the Financial Post today comparing the monetary policy of the Fed, which is the U.S. central bank, to that of the Bank of Canada. It covers a number of topics.
The article states that the recently announced lower immigration targets could slow down inflationary pressure, particularly with respect to housing, but they could also slow growth. Have you had time to factor that in?
The article also mentions that this could encourage you to further lower interest rates. The article talking about another half-a-point decrease in your next announcements. In December, are you going to lower rates by half a point?
Governor, Bank of Canada
I'll start with your last question first. We will decide what we will do in December, factoring in all the data that will come to us from now until December.
There are two things to consider when we talk about population growth rate and its impact on inflation. The population growth rate is directly correlated to the GDP growth rate. The more consumers we have, the higher GDP growth will be, and conversely, if there are fewer consumers, GDP growth will be weaker. When it comes to inflation, however, there are effects, but it's less clear, because the population growth rate influences supply and demand. When the population growth rate slows down, there are fewer new consumers and demand is lower. However, there are also fewer new workers entering the economy and, as a result, less potential growth, so there is an effect on the gap between production and supply and demand.
You're right that different sectors will be impacted. Less population growth probably means less demand for housing, which means less pressure on that sector, but also fewer workers. As I mentioned to Mr. Davies, we will be looking at the government's new plans. According to our forecasts, there will be a sharp decline in population numbers next year. With the new changes, the drop could be even more dramatic. We will take a close look at that when we make our next forecast.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you very much.
I'm going to continue on another topic. You both talked a lot about artificial intelligence.
Mr. Macklem, you gave a speech on this topic at a conference in Toronto in September. There's been a lot of talk about weak productivity and the potential for AI to improve productivity. You have one and a half minutes to leave us with food for thought.
Governor, Bank of Canada
It's a very broad topic. We know that some of the greatest advances in AI have been made here in Canada, and we have leaders in AI in Toronto, Montreal and Alberta. However, when we look at how AI is being used by our businesses, we see that AI use here is below the average use made by American businesses. That said, I hope that AI can increase our productivity rate.
As I pointed out in my speech, it will take time, because there are uncertainties. In the short term, it will also increase demand for workers with skills in various fields such as electrical and digital. As a central bank, we try to understand all the effects and maintain price stability. Having said that, I think this is an opportunity for Canada. We have AI creators here in Canada, so we should be taking advantage of that.
Liberal
NDP
Don Davies NDP Vancouver Kingsway, BC
Thank you again for taking the time to be here with us.
Governor, I think I mentioned that you're going to soon be in the process of renewing your inflation mandate. I noted that in the 2021 mandate some new language was added to instruct the bank to also pursue maximum sustainable employment in addition to low and stable inflation.
Can you tell us what “maximum sustainable employment” means, in your view, and how those words in the mandate influence your actions in the post-COVID inflation environment, if at all?
Governor, Bank of Canada
Maximum sustainable employment.... It would be lovely if it were easy to just give you a number. I can't give you a number. It's really a concept. What is meant by “maximum sustainable” is the maximum level of employment the economy could sustain without creating inflationary pressures. That's what's meant by “sustainable”.
The economy, a couple years ago, was very overheated. We had a very high level of employment. We had a lot of job shortages, but it was not sustainable. It was creating inflation. Now we have some softness in the labour market. We could have more employment without creating inflation. That's an important reason we're lowering interest rates.
We do spend a lot of time looking at the labour market. You can't summarize the labour market in a single statistic. It's not just the unemployment rate. It's the participation rate. It's younger workers. It's older workers. It's men. It's women. It's immigrants. It's students. You have to look at the diversity.
Right now, the slack, the weakness in the labour market is very concentrated in newcomers to Canada and youth, as you've already highlighted. You have to look at the overall health of the labour market. That does factor in an important way into our monetary policy decisions. Our primary objective—and the mandate is very clear—is price stability, but price stability or low inflation go hand in hand with strong employment because, if you're missing jobs, you're missing incomes, you're missing spending and inflation is going to come down. We do look at that very closely. We know that if we don't keep inflation well anchored, nothing is going to work well in the economy, so that's our primary objective.
Governor, Bank of Canada
That's the primary objective. We spend a lot of time looking at employment because it's important in and of itself, and it's important to achieving our inflation objective.
NDP
Don Davies NDP Vancouver Kingsway, BC
Can you quantify for us in some way where we are in terms of maximum sustainable employment? We're very precise when it comes to inflation. It's a little harder. I'm not looking for a percentage—
Governor, Bank of Canada
First of all, we don't have a target for maximum sustainable employment. We don't even know exactly where it is. When you get up closer, you sort of test the boundaries. Right now, we're below maximum sustainable employment. That's what we mean when we say the labour market's soft or there's some slack in the labour market.
Senior Deputy Governor, Bank of Canada
We were using a chart in our monetary policy report for quite a while when the labour market was really tight. It had, I think, about 10 different indicators, and we showed you where we were sitting relative to the record rates. That would be our best way to summarize, in a table, the labour market.
NDP
Don Davies NDP Vancouver Kingsway, BC
I have one last question, or maybe two.
Deputy Governor, you said in March of this year that “Canada has many advantages that should lead to higher investment and productivity.”
Why isn't that happening, and what ought the federal government to do about it?
Senior Deputy Governor, Bank of Canada
As we've said about five or six different ways tonight, there is no one magic thing. There's a reason that productivity has been a challenge for a while. There's a reason there's nobody who has waved a magic wand and fixed it.
Senior Deputy Governor, Bank of Canada
I think the suggestion that came up tonight, about finding ways to recognize Canadians' credentials across provincial borders and have quicker credential recognition for people we bring into our country, would be a good idea. We're not aware of a blue seal program, but that concept of credential recognition would be a good idea, if we could speed that up.
Liberal
The Chair Liberal Peter Fonseca
Thank you.
Thank you, MP Davies.
We want to thank the governor and senior deputy governor for coming before the finance committee and answering many questions on behalf of the Bank of Canada on monetary policy. We always welcome them, but we welcome them more when they come when we know that inflation is low and rate cuts are happening.
We'd love to have you here in January to tell us about more rate cuts and also to tell us about your comprehensive report on the pandemic.
Thank you.
We're adjourned.