'QE can widen wealth inequality': Bank of Canada to examine its COVID-19 measures

·2-min read
Bank of Canada Governor Tiff Macklem takes part in a news conference in Ottawa, Ontario, Canada December 15, 2020. REUTERS/Blair Gable
Bank of Canada Governor Tiff Macklem takes part in a news conference in Ottawa, Ontario, Canada December 15, 2020. REUTERS/Blair Gable

Bank of Canada Governor Tiff Macklem says the central bank's massive stimulus program called quantitative easing (QE), which it recently announced will be tapered to $3 billion a week, could be widening wealth inequality.

"QE can boost wealth by increasing the value of assets such as the investments Canadians have in their registered retirement savings plans or company pension plans," he said during a speech about the benefits of an inclusive economy.

"But of course, these assets aren't distributed evenly across society. As a result, QE can widen wealth inequality. 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."

The program, along with a string of interest rate cuts, is part of the Bank of Canada's response to the COVID-19 pandemic.

"Today, we are in the sharpest and most unequal economic cycle in our lifetime. And the Bank has pledged to support Canadian households and businesses through the full length of the recovery by holding our policy rate at its effective lower bound until the spare capacity in the economy is used up, so that we sustainably achieve our 2 per cent inflation target," said Macklem.

"In other words, we will use our monetary policy tools to support a complete recovery and achieve our inflation goal."

The Bank of Canada wants inflation to reach its target but not overshoot it.

"Inequality has long been a concern of the Bank of Canada. Our focus on inflation control has always recognized that inflation is particularly tough for poorer Canadians and for those on fixed incomes because they are most affected when the purchasing power of cash declines," said Macklem.

"Years of low and stable inflation haven't made us complacent about the potential threat these groups face."

Macklem also encouraged companies to pursue more diverse and inclusive workforces.

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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