Friday September 8, 2023

Editorial Cartoon by Graeme MacKay, The Hamilton Spectator – Friday September 8, 2023

Chilling the Economic Heat: Macklem’s Freezer of Monetary Mastery

In a rather peculiar act that could be likened to a magician’s control over a giant freezer’s thermostat, Bank of Canada Governor Tiff Macklem took the stage. With a flourish, he presented an economic spectacle that had the audience in awe.

Mr. Macklem, the orchestrator of monetary policies, confidently declared that the central bank’s prized 2-percent inflation target was “now within reach.” This proclamation came just a day after the central bank had hit the pause button on its monetary tightening efforts, maintaining its key interest rate at 5 percent after two rate hikes during the summer.

News: Bank of Canada’s Macklem says rates may be high enough to ease inflation  

“With previous interest rate adjustments still percolating through the economy,” Macklem proclaimed, “monetary policy might just be chilly enough to restore price stability.” It was as if he possessed a magical dial to cool down the economy, akin to turning a giant freezer to lower temperatures.

However, amid this grand spectacle, ominous warnings lingered in the air. The governor cautioned that his team was ready to crank up the chill factor by raising rates again should consumer price growth stubbornly persist. Inflation, he lamented, was as elusive as finding ice cream in a snowstorm.

The Bank of Canada had embarked on an audacious journey, raising interest rates a whopping ten times in the past year-and-a-half. It was as if borrowers were trapped in a colossal freezer, with the mission to slow down spending and investment, allowing supply to catch up with demand, and, of course, to extinguish the flames of rising prices.

In a prior act of this economic drama, the bank had resumed its rate hikes after a five-month intermission, believing the economy was not cooling down swiftly enough to subdue inflation. However, a series of unfortunate events unfolded over the past month, changing the storyline and bringing a frosty breeze to the narrative.

Gross domestic product data revealed that the Canadian economy had indeed contracted in the second quarter, and the unemployment rate had increased by half a percentage point. Job vacancies, once as numerous as snowflakes in a blizzard, had dwindled compared to a year ago.

“The data since mid-July,” Macklem noted, “provide more evident proof that higher interest rates are moderating spending and restoring balance between supply and demand in the economy.” The central bank’s grip on the thermostat was undeniable.

Opinion: Tiff Macklem reads the tea leaves: Bank of Canada was right to hit pause on interest rates  

Yet, this chilly saga was far from its conclusion. Macklem, the vigilant conductor, struck a hawkish tone when addressing inflation. Despite a decline in the annual consumer price index growth, core inflation measures stubbornly clung to higher levels. Taming the inflationary beast was proving to be quite the challenge.

Amidst it all, Macklem tackled two burning questions. Should the bank exclude mortgage interest costs when assessing inflation, a notion as icy as the Arctic itself? Or, should the bank abandon its 2-percent inflation target in favor of a loftier goal, a move that would send shivers down many spines?

Macklem, in his dramatic denouement, stood resolute. “You don’t raise the target just because you missed it,” he declared, as if to tell the audience that the freezer’s temperature setting was immutable.

The grand finale of this frosty performance left no doubt: the 2-percent target was sacrosanct, an anchor in the icy sea of economic fluctuations. Stability, it seemed, was found in keeping the cost of living frozen around this magical number. And so, the economic theatre lowered its curtains, with Macklem’s symphony of monetary control echoing in the ears of all those who dared to listen. (AI)

From sketch to finish, see the current way Graeme completes an editorial cartoon using an iPencil, the Procreate app, and a couple of cheats on an iPad Pro. If you’re creative, give illustration a try: