Then the Canada’s Governor of the Bank of Canada, David Dodge, the second from the right during a group photograph at the G7 meetings February 7, 2004 in Boca Raton, Florida. U.S. (Photo by Richard Patterson/Getty Images)
A former Bank of Canada governor says Canada is headed for recession, while criticizing the central bank’s messaging on inflation during testimony before a Senate committee on Sept. 22.
David Dodge, who retired from the post in 2008, told the banking committee that economic growth will go down to zero and “unemployment is going to rise,” according to Blacklock’s Reporter.
Senator Pamela Wallin, chair of the committee, sought to obtain clarification from Dodge.
“You stepped back from using the word ‘recession’ but let’s ask you about that,” she said.
“Zero growth rates after a period of three percent growth at annual rates that we’ve recently had is not going to feel so good,” answered Dodge.
“Putting a number on it, I would say zero over that period is a good guess but I think ‘guess’ is the operative word.”
Current Bank of Canada (BoC) Deputy Governor Paul Beaudry gave a lecture at the University of Waterloo on Sept. 20, where he was asked by a student whether rising rates would lead to a recession. He responded that it was “certainly too early to call.”
Other central bankers have also been cautious about uttering the word “recession,” as admissions and projections have real-world impacts.
“No one knows whether this process will lead to a recession or if so, how significant that recession would be,” U.S. Federal Reserve Chair Jerome Powell said on Sept. 21 after raising interest rates by 0.75 of a percentage point for a third straight time.
The projections from central banks about the current inflationary bout have missed the mark, with some of them saying inflation would be kept under control or would be simply “transitory.”
Senator Clément Gignac, an ex-chief economist at the National Bank, criticized central bank officials on their messaging.
“In 2020 the central banks, not only in Canada, mentioned interest rates would remain low for a while,” said Gignac. “As a result in Canada a lot of people bought houses at variable rate mortgages.”
“In 2020 the Bank of Canada mentioned, ‘You know what? Inflation will be transitory.’ Whoops,” said Gignac. “They give the impression they know a lot of things, more than us, and we start to realize they have no better clue than Wall Street economists.”
‘Mistakes Made’
The core mission of central banks is to keep inflation in check.
“In August 2020 they changed their rules and basically said, ‘We’re not going to care about inflation,’” Dodge told the committee.
A former deputy finance minister, Dodge said the BoC’s use of the word “transitory” to describe inflation was “unfortunate,” saying economists could understand “but in plain English, it wasn’t very helpful.”
“So I think there were big mistakes made,” he said.
The federal government has often blamed inflation on global circumstances and supply chain woes and has defended using financial support programs to compensate for lockdown measures imposed by provincial governments.
“We’re up against global headwinds dealing with inflation,” Liberal House Leader Mark Holland said on Sept. 20.
Not every country is experiencing the same levels of inflation, but those that applied similar monetary and financial policies as Canada are in similar circumstances.
Deputy Beaudry admitted this week an earlier pullback by the BoC would have reduced inflation.
“It’s likely a somewhat faster global (stimulus) withdrawal process could have made all countries better off,” he said.
Conservative Party Leader Pierre Poilievre commented on this assertion in a Twitter post on Sept. 21.
“Bank of Canada comes around to what I said for 2 [years]: overspending & cash creation made today’s inflation worse. Now we pay the price: higher costs & interest rates.”
