The head of the Bank of Canada is making an international pitch to his fellow central bankers to better connect with average citizens lest they lose public trust and face an existential crisis.
Governor Tiff Macklem said Thursday maintaining trust is key for central banks during the economic crisis caused by COVID-19, as well as for rebuilding once the pandemic passes.
He points to declining trust in public institutions and experts, as well as the rise of political populism in the wake of the 2008 financial crisis as trends central bankers cannot brush off.
Macklem says it’s more important, yet harder, for central banks to be trusted sources of information at a time when they have rates near-zero and are using unconventional policy tools.
For the Bank of Canada, that has meant a foray into what’s known as quantitative easing, which is a way for central banks to push money into the economy to encourage lending and investment.’
More public engagement needed
Speaking at an annual meeting hosted by the Federal Reserve Bank of Kansas City, Macklem said central bankers shouldn’t sound like “oracles delivering messages from an ivory tower.”
“The imperative is to step boldly beyond market transparency and engage with the public to explain how our actions serve our economy-wide objectives,” Macklem said.
“This means listening to more people, understanding their perceptions — accurate or not — factoring in broader public views into our policy decisions and communicating with people on their terms, not ours.”
The remarks to the meeting in Jackson Hole, Wyo., capped a week of messages from the Bank of Canada about reaching a broader audience as it looks to renew the foundation of its policy decisions.
The foundation for some 25 years as been targeting an annual inflation rate of two per cent, and adjusting its key interest rate to keep prices and the economy steady. The path of the bank’s policy rate influences the rates charged for loans and mortgages, for example.
Inflation has collapsed as economic restrictions have been put in place to curb the spread of COVID-19. National inflation readings in April and May showed price declines, or deflation. Inflation itself is expected to stay low this year and next.
Changing perception on prices
What the Bank of Canada has heard is that people don’t feel like prices are coming down, but rather going up. They are spending less on things that cost less, like gasoline, and more on things where prices are rising.
“We need to find out and understand what is preoccupying the public, including the perspectives of communities and groups we have not been very good at reaching,” Macklem said. “And we need to address those preoccupations.”
The bank has slashed its key rate to 0.25 per cent, which is as low as it will go and where Macklem says it will stay until the economy rebounds. The pronouncement provided a forward-looking statement to markets and marked a shift from Macklem’s predecessor, Stephen Poloz.
In his talk Thursday, Macklem said central banks can’t keep talking to what a Bank of England officials labelled “MEN,” meaning markets, economists and news services.
He noted that the Bank of Canada has seen a sharp increase in traffic to its website, with its plain-language guide to the economy and social media posts getting twice as many views than before the pandemic.
More traditional content like speeches and the bank’s monetary policy report has seen an increase in traffic of over 10 per cent, Macklem said.