Adopting a more pessimistic tone than his predecessor, new Bank of Canada Governor Tiff Macklem said the country faces a challenging path to economic recovery, despite a quick bounce-back so far.

“The recovery will likely be prolonged and bumpy, with the potential for setbacks along the way,” Macklem said in his first speech as BoC Governor, which was made via videoconference.

He noted that the pandemic has created challenges for many, including those setting economic policy, particularly on the inflation front.

“If, as we expect, supply is restored more quickly than demand, this could lead to a large gap between the two, putting a lot of downward pressure on inflation,” he said. “Our main concern is to avoid a persistent drop in inflation by helping Canadians get back to work.”

He also used his speech to defend the bank’s use of inflation targeting, something he had a hand in designing in the early 1980s while working as an economist for the Bank of Canada.

“The message I want to leave you with is that while we are using different tools in these extraordinary times, our policy remains grounded in the same framework,” Macklem said. “The inflation target is our beacon that is guiding our actions as we help bring the economy from crisis, through reopening, to recuperation and recovery.”

As reported in the Financial Post, next year Macklem will be faced with the decision of either sticking with the current inflation-targeting policy or adopting an alternative since the Bank’s monetary policy framework comes up for renewal every five years.

On the topic of inflation targeting, Macklem reiterated that the policy rate—currently at 0.25%—is at its effective lower bound, and reiterated that lowering rates to zero or into negative territory isn’t on the table, since that poses its own set of challenges.

“Some central banks have taken their policy rates below zero. We feel that bringing that rate into negative territory could lead to distortions in the behaviour of financial institutions,” the Governor said. “However, the Bank has a number of other tools we can use to help stimulate demand.”

One of those has been the bank’s aggressive implementation of asset-purchase programs, including the Bank’s commitment to buy at least $5 billion of Canadian bonds each week until the “recovery is well underway.”

“With market functioning restored, these [bond] purchases are working through more channels to deliver stimulus,” he said. “Any further policy actions would be calibrated to provide the necessary degree of monetary policy accommodation required to achieve the inflation target.”

While Macklem wouldn’t say whether the bond-buying program would be enlarged, observers say the message, at least for now, is that these stimulus programs will continue for the foreseeable future.

“It’s fair to say there’s been a noticeable change in tone from the Bank of Canada as we move from the Poloz to Macklem era,” National Bank of Canada economists Taylor Schleich and Jocelyn Paquet wrote in a research note. “He made it clear that the exit from the extraordinary stimulus currently being provided is a long way off.”