A monetary mandarin speaks, but not about everything

A sturdy speech for the monetary policy aficionado in all of us was delivered today by Tiff Macklem, the veteran mandarin who recently rejoined the Bank of Canada, where he’s worked before, after a spell at the finance department. And yet I’m left mulling over what he didn’t tell us.

To mark his return as senior deputy governor, Macklem served up some thoughts of what central bankers need to learn from their near-Depression experience of 2008 and 2009, starting with the lesson that “while Canada’s inflation-targeting framework has served Canadians well, this does not mean that we can rely on the commitment to price stability to ensure financial stability.”

He added later on: “If we look only at interest rates, inflation and output, we may miss bubbles and other elements of systemic risk as they build.” That means, he said, central bankers need to better understand banks and other financial institutions, and credit markets, among other factors.

It’s not the first indication we’ve had of the bank thinking beyond the bounds of its traditional preoccupations in the wake of 2008’s traumatic global bursting of financial bubbles. Mark Carney, its dynamic governor, is already the most closely watched figure in Canadian economic policy circles, and the addition of Macklem is another reason to take Carney’s shop very seriously.

But I’m intrigued by the speeches Macklem did not deliver today at Montreal’s old Mount Stephen Club.

Citing how Canada still hasn’t recovered the “lost momentum and opportunity the crisis left behind,” and alluding to the need for better private sector risk management and stronger financial regulation, he demurred from addressing these questions head-on, saying, “But today I want to focus on the lessons of the Great Recession for monetary policy.”

What does Macklem think, though, about those risky practices of private financial institutions and how to regulate them? Since he raises the subject, I can’t help wondering.

And, later on, he touched briefly on the bad old days of the early 1990s, when Canada’s debt was scary high and the worries of foreign investors made it hard to wrestle Canadian inflation into submission. “This offers a cautionary tale to other countries with high and rising debt,” Macklem said. “But that is the topic for another speech.”

Drat. And there I was hoping for a moment that he was about to speak candidly about how Canada’s experiences with recklessly high deficits and crushing debt might instruct, say, Washington policy-makers on how to approach to the same dangers today.

Maybe another time.