Bank of Canada says QE can widen wealth inequality, is probing its effects By Reuters

© Reuters. FILE PHOTO: Bank of Canada Governor Tiff Macklem arrives to a news conference in Ottawa, Ontario, Canada September 10, 2020. REUTERS/Blair Gable/File Photo/File Photo

By Julie Gordon and David Ljunggren

OTTAWA (Reuters) – The Bank of Canada said on Thursday that some of the monetary policy tools it is using to address the COVID-19 pandemic, such as quantitative easing (QE), could widen wealth inequality and that it was looking closely at the issue.

Governor Tiff Macklem, speaking to university students in Atlantic Canada by videoconference, said that while the QE program stimulated demand and helped create jobs, it was also boosting wealth by inflating the value of assets.

“But of course, these assets aren’t distributed evenly across society. As a result, QE can widen wealth inequality,” he said. “We will look closely at the outcomes of QE here and elsewhere and will work to more fully understand its impact on both income and wealth inequality.”

As part of its QE program the bank had been buying C$4 billion ($3.3 billion) of government bonds a week but last month cut that to C$3 billion, becoming the first major central bank to taper bond purchases.

It also signaled that it could start hiking interest rates in late 2022, as it sharply boosted its outlook for the Canadian economy.

Still, Macklem reiterated Thursday that the benchmark rate would stay at its current record low 0.25% until inflation was sustainably at the 2% target. The bank, he added, would continue to use monetary policy tools to support a “complete recovery.”

That includes a return of all jobs lost to the pandemic, the creation of more jobs for new entrants to the labor force and “good opportunities” for those most affected by the pandemic, said Macklem.

“Today, we are in the sharpest and most unequal economic cycle in our lifetime,” he said.

For businesses, a complete recovery means they are confident the effects of the pandemic are well past, and are again looking to add capacity and invest in new opportunities, said Macklem.

The Canadian dollar was trading 0.1% lower at 1.2140 to the greenback, or 82.37 U.S. cents.

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