Bank of Canada Governor Tiff Macklem is STOREYS Newsmaker of the Year for 2021.

Macklem, the Bank of Canada’s 10th Governor, has been tasked with steering Canada out of the ongoing COVID-19 pandemic and, monumental task it may be (the weight of which few of his predecessors carried on their shoulders), the efficacy of his decision-making is being called into question.

Calling the pandemic a spanner in the works would understate the topsy-turvy fallout. One of the pandemic’s long-term ramifications is the widening wealth chasm that Macklem’s policies seemed to exacerbate. As far as STOREYS has ascertained, that wasn’t intentional, but should the country’s central bank -- and the man whose words, to say nothing of his policy decisions, Canadians relied upon to plan their financial futures -- be let off the hook so easily? Especially when his pandemic policy regime appears piecemeal rather than the well-oiled strategy one would expect from a leadership figure?

Ron Butler, Owner of Butler Mortgage, believes Macklem deserves some leeway for his pandemic responses, at least during its onset, however, he says the Governor’s policies were ultimately undermined by the timing of their implementation, for which he’s responsible.


“He had to manage the beginning of the COVID crisis, which is now getting close to two years, and of course he dropped the interest rate through the floor and he chose to immediately engage in quantitative easing (QE), in which the Bank buys government bonds, and you can make the case that was fine because there was a worldwide pandemic, a catastrophe, and people were told to stay home and it was necessary to manage, but at the same time, Macklem said something to the effect of, ‘Rates will be low for long,’” Butler said. “That’s fine, but historically Bank of Canada governors didn’t say things like that. If we go back about 80 years the Bank has had governors, they did not say things like, ‘low for long,’ and the simple reason is they know the public listens to them.”

Bank of Canada governors have actually been around for 87 years, and it’s difficult to find examples that rebut Butler’s claim that they were typically cautious not to make such emphatic declarations. While Butler questions whether a static interest rate environment qualifies as long, he’s nevertheless steadfast in his belief that Macklem’s sudden announcement that interest rates will rise ahead of schedule as a way to hedge record inflation suggests Macklem might have made grave miscalculations in his pandemic-response strategy, if not his management throughout.

It is true that Macklem prefixed the word “inflation” with the word “transitory,” which Jerome Powell, Chair of the Federal Reserve of the United States, days ago jettisoned, stating, “It’s probably a good time to retire that word and try to explain more clearly what we mean.” Macklem could have been clearer, if not more forthright, Butler charges.

“[Inflation] is going to be here a long time. How often can you be wrong in telling people how to run their financial lives, because that’s effectively what you do when you make predictions -- you better give a good bit of notice when you decide it’s not ‘long’ anymore. Mackem should have said that in June, not last month.”

Macklem, in fact, said that inflation is “transitory but not short-lived.”

But that’s mere obfuscation, Butler parried.

“It means a lot to households in Canada, so why are you wrong all the time?” Butler said. “If inflation is here for a long time, you can reorder your life in a different way, so don’t say ‘transitory.’”

The Office of the Superintendent of Financial Institutions, a federal government agency, updated its B-20 regulatory regime earlier this year by stress testing mortgages at a floor rate of 5.25%, increasing it from 4.79%, or applying 2% -- whichever is greater. However, according to Laura Martin, Chief Operating Officer of Toronto-based Matrix Mortgage Global, the central bank’s monetary policies since the pandemic’s inception have worsened, rather than ameliorated, inauspicious market conditions for Canada’s first-time homebuyers, and amount to a missed opportunity.

“Mortgage rates will be going up, and as COVID is slowly coming to an end, reports show that recovery has been choppy at best. We’ll see more fallout now that CRB [Canada Recovery Benefit] is cut off completely; the labour market is deceiving because unemployment isn’t as bad as it was, but the quality and type of employment isn’t great -- a lot of people are on contract work, in temp jobs, having to drive Uber, or they’re doing startups and are self-employed,” -- the latter of which, Martin added, makes mortgage qualification daunting because of outdated underwriting requisitions -- “so I think Canadians are not quite out of the woods yet. Right now, rates are only beneficial to people who are ultra-wealthy. With the stress test and its relationship to borrowing power, it cuts Canadians off at their knees right off the bat under the auspices that rates will surely increase.”

Martin is alluding to what she believes are central bank-induced policies that, through the creation of a floor-rate environment, allowed people with existing, and no doubt appreciated, assets to leverage them into greater wealth while stymieing in their tracks those who could have benefitted from that once-in-a-lifetime policy regime to climb the ladder, if even only by a step. Instead of opening the door to first-time homebuyers, the Bank of Canada ensured it remained shut and, in a bout of superfluity, locked it before proceeding to open a backdoor for the well heeled.

housing marketBank of Canada/Flickr

Additionally, Martin says, Canada’s record inflation, which reached 4.7% in October, well over the Bank’s 2% target, has exacerbated economic precarity that was sparked by the pandemic for large swaths of the country, to say nothing of the aforesaid first-time homebuyers. The responsibility is Macklem’s, she stated.

“Inflation affects people who have less disposable income to begin with,” Martin said. “If you want to measure the effectiveness of his economic decisions, the most basic, and troubling, indicator would be inflation rates that are at a 19-year high. The current 4.7%, up from 0.7%, is going to be lasting and a deep blow to lower-income earners. Working-class folks who have far [less] disposable income than those who make economic policy, for instance, will feel the effects the most. ‘Inflation inequality’ is a term that exists because it primarily impacts society’s most basic needs: gas, which is up 41% year-over-year, groceries, bond yields and taxes, to name a few. When you combine that with investors running rampant, snapping up housing during the biggest inventory crisis and going unchecked, you can really see that the policy decisions weren’t going to be good for many Canadians.”

Alhough it is true that runaway housing prices in Canada are primarily a consequence of the frenetic resale market, and even if rock-bottom interest rates are the catalyst, Canadians’ homebuying proclivities aren’t the responsibility of the country’s central bank. Nevertheless, inflation is a preponderant cause of new build home prices escalating as quickly as they have. The prices of lumber, concrete and steel initially rose because of supply chain issues, and while they dropped, to varying degrees, inflation will ensure they rise again.

Steel has increased from $2,500-2,800 per condo unit in Toronto to nearly $4,500-5,000, and while lumber averaged $40,000 per individual new construction house before the pandemic, it shot up to $102,000 in mid-2021 before settling at around $60,000. Developers, under immense pressure from construction lenders expecting them not to fall below a 10-15% profit margin, use their real-time material costs in future projects’ pro formas, which means supply and demand won’t entirely explain exorbitant housing price points in 2022.

“Inflation has some responsibility for runaway prices because, in new construction, they have to build in costs into whole systems. If you can’t get kitchen vanities because of existing supply chain issues -- you can get them but they’re 35% more expensive -- then inflation is absolutely affecting house prices, and on the new construction side, very much,” Butler said before returning to his most scathing criticism of Macklem.

“[The Bank of Canada] should have taken steps to cool the incredibly low cost of money way back in May or June when [it] had already seen the real estate market was going crazy in the latter part of 2020. [It] should have thought twice. Macklem is responsible for it. [At Butler Mortgage], we were offering five-year fixed mortgages for 1.54% in the fall of 2020 -- you could get a five-year mortgage for $2 million at 1.54%, and inflation today is 4.5%, so you’ve made 3% because the mortgage is negative real interest, and if you don’t think that’s stimulation to a housing market, you’re wrong.”

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