Donald Trump once said he liked Janet Yellen, the U.S. Federal Reserve chair he inherited from Barack Obama, the previous U.S. president. Yellen was a fellow New Yorker and she favoured low interest rates. But none of that was enough to reappoint her when her term ran out.
“You like to make your own mark, which is maybe one of the things she’s got a little bit against her,” Trump told Fox Business Network in October 2017 as he pondered his options. He eventually chose Jerome Powell, the current chair, denying Yellen the customary opportunity to serve at least a second term.
Justin Trudeau also likes the central bank chief he inherited from his predecessor. The prime minister had high praise last week for Bank of Canada Governor Stephen Poloz, who unleashed an historic barrage of monetary stimulus last month as part of Ottawa’s fight against the coronavirus crisis.
“The government has many fiscal measures, but a strong Bank of Canada is essential in getting us through this as well and Governor Poloz, as always, has done an extraordinary job and continues to do an extraordinary job,” Trudeau said at his daily press briefing on April 10
Yet Trudeau, like Trump, seems keen to make his own mark on the central bank. The prime minister’s glowing review of Poloz’s performance was prompted by a question about a Globe and Mail report that the governor hadn’t been asked to delay his imminent retirement, despite the all-hands-on-deck nature of the fight against the fallout from COVID-19.
Poloz in December said he would retire at the end of his seven-year term on June 2, setting in motion the search process for a replacement. On March 13, he told reporters that he saw no reason to alter those plans. “We have an excellent team,” he said. “I have confidence in that team.”
Still, given all that’s transpired over the past six weeks, and considering all that could go wrong in the weeks ahead, you might have thought the federal government would have asked Poloz to delay his departure by at least a few months until things settle down.
There’s recent precedent for such a decision. Mark Carney extended his term as head of the Bank of England a couple of times to provide stability during the Brexit saga. He then agreed to stay for an additional couple of months to allow for a smooth transition to his replacement, Andrew Bailey, who took over in March.
No such request has been made of Poloz, even though the governor would stay if asked, the Globe reported, citing an unnamed “confidant.” A Bank of Canada spokesperson declined to comment on the report.
“The process (of choosing a new governor) is ongoing and decisions haven’t been made as to what the next steps are,” Trudeau said. Pressed for a timeline, he said, “The discussions and reflections are ongoing.”
Such discussions ought to have been short. They should have started with a question: Do we have the bandwidth right now to fill what is arguably the most important federal appointment after the chief justice of the Supreme Court? The answer obviously is, no. There’s just too much going on.
Finance Minister Bill Morneau, who is responsible for overseeing the selection of a new governor, is still working on industry-specific rescues, which will be his most fraught decisions yet. He may also need to throw cash-strapped provinces a lifeline. Newfoundland and Labrador was weeks away from running out of cash in mid-March and was saved from default by the Bank of Canada’s decision to start buying short-term provincial debt, the CBC reported on April 1.
And that’s just Morneau’s calendar. Choosing a governor is ultimately a cabinet decision, and many other key ministers are swamped with managing the unprecedented health emergency. There would be no shame in admitting that no one has the time right now to decide who should lead the central bank.
Even if Morneau had someone in mind earlier this year, the landscape has totally changed in the past month. In February, the main challenge for a new governor would have been managing a major review of the way the central bank sets interest rates. Now, the next governor will also be charged with eventually unwinding unprecedented monetary stimulus. You’d like the finance minister to have some open spaces on his calendar to think hard about that decision, and not have to force it amidst the chaos of an epic calamity.
The other reason to ask Poloz to stay is to avoid putting more strain on central bank leaders. The governor isn’t irreplaceable. But he is among the most experienced policy-makers in Ottawa and probably has a better feel for the rhythms of the real economy than anyone else in the capital. He is also said to be a talented manager, an underappreciated skill in normal times, never mind during a crisis.
It makes you wonder why you would let someone like that go at a time like this. From Trudeau’s perspective, the only reason to do so would be because he puts greater value on installing his own governor. The best candidates include a woman and some Francophones, presenting Trudeau with an opportunity to end the stranglehold of anglo men on the position.
But that history-making opportunity will still exist later this year or even early in 2021. The best way for Trudeau to make his mark right now is to set aside his personal agenda and ask Poloz to stay a little while longer.
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