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In his year-end remarks, Governor Tiff Macklem discusses how lessons learned from recent economic volatility are reshaping the way the Bank of Canada conducts economic analysis and communicates with the public.

Watch Governor Tiff Macklem speak to the Canadian Club Toronto. Read the full speech.

A year of transition

Inflation was 3.1% in October, but that remains well above the 2% target. And it’s too high in key categories of goods and services, like food and rent.

The current phase of the monetary cycle could be the most difficult:

  • higher interest rates are squeezing Canadians
  • inflation remains too high
  • the economy is rebalancing

But we know that monetary policy is working. We’ve made considerable progress in 2023, and inflation is on the way down. This is why the year ahead will be a time of transition. We expect economic growth to continue to be near zero, as higher interest rates work their way through the economy.

But this period of weakness will pave the way to a more balanced economy. We expect growth and jobs to be picking up later next year, and inflation will be getting close to the 2% target.”

The lessons learned

The volatility of the past few years has taught us some valuable lessons.

It reminded us that inflation hurts people and the economy. We are all affected, and nearly all of us are worse off for it.   

This lesson reinforced the importance of our 2% target. When inflation spiked in 2022, we responded forcefully, and we remain committed to getting inflation back to target. That’s because when inflation is at 2%:

  • people can plan without worrying about changes in their cost of living
  • the economy has more competition and greater stability—it simply works better

We’ve also learned how valuable public trust is. In the 1970s, central bankers didn’t have this trust, and bringing inflation down was difficult. This time around, trust has helped keep inflation expectations anchored on the 2% target. But we also know trust is earned, not given.

The worst of the pandemic has passed, and we’ve learned where we need to pay more attention and adapt our tools and models. The future holds different challenges and sources of uncertainty:

  • geopolitical tensions
  • extreme climate events
  • high levels of debt

Supply disruptions and shifts in economic relationships could also become more common. To navigate these issues, we are improving our analytic tools to:

  • better understand economic shifts
  • analyze data at a more granular level

We want the public to understand the decisions we make and why we make them. Transparency is key. That’s why we’ve been improving communications by increasing our:

  • social media presence
  • outreach with Canadians across the country

In 2024, we will take questions at every monetary policy decision, as part of the Bank’s commitment to explain our actions.

Our commitment in the face of uncertainty

We can fine-tune our analyses and improve our forecasts, but predicting the future remains difficult—if not impossible.

As we navigate this environment of heightened uncertainty, we must face it with humility. Monetary policy has limits to what it can achieve, but by listening more and communicating better, we can build the public trust needed to ensure Canada’s economy is prepared for the challenges of the future.

But if we learned anything from the bitter experience with inflation in the 1970s, the biggest mistake would be to waver in our resolve to control inflation and to lose the public’s trust.”

Watch Governor Tiff Macklem answer questions from the media following his speech.

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