MNI: BOC Moves Less Clear-Cut With Murky Job Market- Vincent

The Bank of Canada's rate path is muddled because job market weakness is a mix of short and long-term shocks requiring risk management, Deputy Governor Nicolas Vincent said Tuesday, remarks coming as investors bet on higher rates and economists see a potential cut. 

Young workers face tougher conditions than slumps in 2008 and the early 1990s even as an aging population points to looming shortages, Vincent said in a speech in Montreal. U.S. tariffs on autos and metals are also hurting workers in targeted industries while some firms are using AI to replace workers, he said.

Monetary policy can end up in the wrong place if officials confuse inflation pressures from the current economic cycle and permanent changes in the job market, Vincent said. The labor market has become more prominent in the Bank's thinking because the last change to its inflation-targeting deal with the government added language about boosting employment when the price goal is met. 

"While monetary policy can, to some extent, help the economy transition during periods of restructuring, it cannot compensate for lower supply caused by factors such as trade friction or population aging," Vincent said. "If we were to stimulate demand when the issue is more structural, we could create inflationary pressures while also delaying necessary restructuring in the economy."

Canada's job market remains soft according to Vincent and in a mode of slow hiring and firing. His remarks didn't touch on a specific outlook for the 2.25% overnight rate. At the last meeting officials said if energy prices decline in coming months policy is about right but consecutive hikes could be needed if oil prices turn into wider inflation, or a reduction may be needed if there are major new U.S. tariffs.

"The more our economy faces shocks accompanied by structural change, the less clear-cut our monetary policy decisions will be. When faced with structural change, even though we can support the economy to some degree during periods of restructuring, we can’t choose its final destination," Vincent said.

The Bank may also continue publishing different economic scenarios as officials started doing after the first big round of U.S. tariffs to make clear there is a wider range of outcomes, he said. "The current environment is especially complex. Risk management is therefore essential."