While nothing’s official yet, it seems plausible that the Bank will be given responsibility for the macroprudential oversight Carney has been advocating for months. Whether or not it also receives new regulatory powers, this will mark a subtle but important expansion of the Bank’s role, from simply keeping inflation in the 2 percent range to monitoring the overall health of the Canadian economy.
One thing won’t change, however. Carney and other central bankers know they will have to revert to traditional monetary policy in about eighteen months, when the economy begins to heal. That could mean an asset sell-off, and it will almost certainly mean defying public opinion by cranking up interest rates to contain inflation. And like central bankers past, Carney will once again have to climb down from the watchtower and take away that punch bowl.
