Just about now, Bank of Canada governor Mark Carney should be experiencing that sinking, helpless feeling about the economy.
The former Goldman Sachs executive is widely expected to cut short-term interest rates another half-point tomorrow to bring the central bank’s overnight rate to a barely-noticeable 0.5 per cent. For all practical purposes, zero.
That would make it the seventh time Carney has cut interest rates since taking charge last February. In that time he has also injected $40 billion in cash into the economy through asset swaps with banks, and last week took the unusual step of agreeing to accept corporate bonds as collateral to try and free up credit. None of it has worked and the economy continues to decline.
In his last speech in January, Carney insisted that monetary action taken so far “will work,” noting the lengthy lag time between action and impact, often cited as 12 to 18 months. Since the bank started cutting 15 months ago, Canada should be just beginning to feel the effects.
Carney has invested a lot of credibility in the assertion it will work. However, until global banks have the confidence and wherewithal to start lending again, the U.S. and global economies will continue to struggle. And that will keep prices for commodities that Canada exports low, sap demand for Canadian manufactured goods, and in turn stifle Canadian job creation and incomes.
And that’s where Carney’s frustration comes in. He is a spectator in a game played outside his borders, able to influence the outcome only at the margins.