The Financial Post reports in its Tuesday edition that John Manley thinks Prime Minister Justin Trudeau's fiscal policy is making it harder for the Bank of Canada to contain inflation. The Post's Stephanie Hughes writes that a report last week concluded federal deficits are not sustainable for the next 10 years. However, the federal government continues to favour a path that tapers COVID spending, rather than quickly returning to something closer to a balanced budget. The extra fiscal stimulus is stoking demand, and putting upward pressure on inflation. The BOC raised interest rates last week despite an outlook that predicts economic growth will stall this year, because Governor Tiff Macklem is concerned that cost pressures remain a threat. Mr. Manley says: "Fiscal and monetary policy are not aligned, and the importance of that alignment is key. ... This is a bit like driving your car with one foot on the gas and the other on the brake generally, especially if there's slushy conditions under your tires. That's not a good plan for controlling the direction of your vehicle, not a good plan for controlling the direction of the economy either."
The Post says other economic voices have raised similar concerns.
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