Governments in the advanced economies mounted a massive fiscal response to the COVID crisis. They ramped up spending, mainly on income supports to individuals and businesses, and financed it by borrowing. Central banks also responded on a massive scale. They dropped their policy interest rates close to zero, and their balance sheets ballooned as they bought securities — mainly government debt — and flooded the global financial system with liquidity. These responses undoubtedly cushioned the COVID blow to our economies. But, more than a year later, especially in the United States and Canada, both fiscal and monetary policy are still in overdrive. It is reasonable to worry that they are going too far. On the fiscal side, the income...
On Wednesday, the Bank of Canada left its target for the overnight rate at 0.25 per cent, and kept its purchases of Government of Canada bonds at $3-billion per week. Forecasters and financial market participants expected these announcements, and took them in stride. Below the calm surface, though, a couple of key questions about Canadian monetary policy are causing concern. One is about where inflation is going. The year-over-year increase in the consumer price index (CPI) hit 3.4 per cent in April, its highest reading in a decade, and above the 1- to 3 -per-cent acceptable range the central bank has for its 2-per-cent target. The bank’s statement on Wednesday emphasized that such above-target CPI increases are temporary. When demand...
Housing costs have become a national economic concern, reaching policymakers in Ottawa. Normally, federal moves affect the demand side of housing through lending policy. But lending power does not address the core problem now, which is lack of supply. What could Ottawa do in an area that is normally provincial jurisdiction? It could use its money wisely to solve problems local governments have a harder time tackling. First, Ottawa could require that infrastructure grants only go to areas that expedite development. Here the key justification for a federal role is a need to curb local residents’ opposition to construction. This opposition, which restricts entry, would be considered anti-competitive action if a business did it (and would...