Finance Committee on Nov. 23rd, 2022

[Tiff Macklem]

There isn't one Canadian; there is a diversity of Canadians and, yes, some Canadians are really being squeezed. We understand that.

[The Chair, Liberal, Peter Fonseca]

Thank you, Governor.

We like the fulsome answers, and I try to give—

[Tiff Macklem]

They're fulsome questions.

[The Chair, Liberal, Peter Fonseca]

Yes, that's correct.

Members, we are now moving on to the Conservatives.

I have MP Scheer for five minutes.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Thanks very much.

I want to pick up on a point my colleague Ms. Damoff brought up: the idea that there are global shocks and this war in Ukraine affecting prices.

Correct me if I'm wrong, but inflation was already well above the 3% target before the war in Ukraine. Is that correct?

[Tiff Macklem]

That's correct.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

You're telling us that quantitative tightening is part of the solution to inflation. Just so I understand, “quantitative tightening” is when the Bank of Canada allows the bonds it holds to lapse, basically. The bank is retiring that money out of circulation—out of existence. Is that correct?

[Tiff Macklem]

Yes. What we're doing is allowing the bonds we have on our balance sheet to come to maturity and not purchasing any more, so that balance sheet is shrinking.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Okay.

Is the money supply shrinking in correspondence with that?

[Tiff Macklem]

If you look at broad measures for money—at M2 growth, for example—it has come down considerably, yes. That doesn't just reflect quantitative easing. It also reflects the fact that we have raised interest rates a lot, which tends to reduce money growth, as well.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

It's part of the tool kit.

[Tiff Macklem]

It's part of it.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Quantitative tightening retires the money the Bank of Canada created to purchase the bonds, but you are simultaneously saying that quantitative easing, which is the creation of that money to purchase those bonds, had nothing to do with inflation, at all. Quantitative tightening has this magical ability to solve part of the problem—

[Tiff Macklem]

That's not what I said. I said there—

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

—that quantitative easing had nothing to do with.

[Tiff Macklem]

That's not what I said.

What I said—

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Simply, did quantitative easing contribute to inflation, yes or no?

[Tiff Macklem]

There is nothing uniquely special about QE or QT. They are part of our monetary policy response. They complement our interest rates. If you look at all those things together, yes, we've put a lot of monetary stimulus in place. With the benefit of hindsight, we should have started taking it out earlier. We actually stopped QE more than a year ago.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

With the benefit of hindsight, do you wish you had stopped QE earlier?

[Tiff Macklem]

When we get inflation back down to 2%, I think we are going to need a thorough review of how all our tools worked through this pandemic—

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

I was looking for a yes or no.

[Tiff Macklem]

—and I'm not saying we got everything right. We didn't get everything right.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

I only have a couple of minutes left. I don't mean to cut you off.

[Tiff Macklem]

I think we got a lot of things right. We have some lessons to learn.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

I only have two and a half minutes left, so I have to move on to other topics.

I want to make sure I fully understand the loss, and who's on the hook for that loss.

The Bank of Canada has an obligation to pay, in interest payments, money to the large financial institutions that have accounts at the Bank of Canada. It's now paying more in interest than it's receiving from the Government of Canada for the rate of the bond itself. What you've told the committee is that, barring any legislative change—which is hypothetical—the loss has to be covered by the taxpayers, in real terms.

Is that correct?