Stephen Poloz acknowledges that being the Governor of the Bank of Canada isn’t exactly a low-stress job. But it’s pretty clear that, even in the home stretch of his seven-year term, he still thrives on the adrenaline.
“There are so many things you don’t know. You worry that you’re making a mistake or that, as time goes on, it’ll turn out you’ve made the wrong judgment,” Mr. Poloz says, relaxing in a meeting room in a downtown hotel this week after his final public address and press conference of 2019.
“But [the job’s] big attraction is that everything you do matters to so many people. Getting it right, year over year, means that the economy has fewer or smaller fluctuations that hurt people,” he says.
“If you’re in the middle of that, using all the tools and working with a fabulous team to reach judgments that turn out to work out okay? That’s an amazing feeling.”
This is Mr. Poloz’s fourth annual year-end interview with The Globe and Mail – and his last. His seven-year term as Governor of the Bank of Canada ends next June, and last week, the 64-year-old economist announced that he wouldn’t seek a second term.
An avid golfer, he confesses that his game has suffered in the past six and a half years – not a lot of free afternoons to hit the course when you’re guiding a G7 country’s monetary policy and running an 1,800-employee organization. Still, he boasts, he is the current holder of the Green Jacket – no, not the one they give the Masters champion on the pro circuit every year. This one is a gaudy old sports jacket that he and his golfing buddies have been battling over for more than two decades on their annual trip south. Steve, as his friends know him, is the reigning champ. (The winner is required to wear his conspicuously loud trophy on the flight home.)
While the end of his tenure may free up more time for Mr. Poloz to work on defending his crown, he insists he’s not retiring – he’ll be in the market for a new challenge once his time at the bank wraps up.
“I’m pretty careful not to use the ‘retirement’ word,” he says – joking that his wife of 43 years, Valerie, is in no hurry to have him around the house. “She would be unhappy to see me retire – and I think I would be, too.”
Like many of his years on the job, 2019 proved more complicated than most people would have expected. While Mr. Poloz made no interest-rate moves – the bank’s key rate remains at 1.75 per cent, after the year’s eighth and final rate decision last week – it was anything but a do-nothing year.
The widening trade rift between the United States and China through the middle months of 2019 was deeply unsettling to the global economy, as international trade contracted, business investment evaporated and financial markets recoiled. In response, more than 40 central banks around the world have lowered their rates in the past six months – including the U.S. Federal Reserve, which has cut three times.
But while Mr. Poloz has not sugar-coated the serious threat posed by the U.S.-China trade war, he has been adamant that Canada is not in need of rate cuts, with its economy still near full capacity and inflation around the bank’s all-important 2-per-cent target. What’s more, he and his colleagues warned that given the country’s high levels of household debt, a rate cut would carry a high cost – in the form of pouring fresh gasoline on the smouldering consumer-debt fire.
“How Governor Poloz managed to navigate 2019 – a year with exceptionally high uncertainty – should be a feather in his cap,” says Frances Donald, chief economist at Manulife Investment Management. “He exits 2019 as one of the only major central bankers in the world to have not cut interest rates. And miraculously, the Canadian economy has fared just fine.”
“When we look back on this year, even though there was no change whatsoever in Bank of Canada policy, I think most would applaud that series of decisions. The outcome was relatively successful,” says Bank of Montreal chief economist Douglas Porter.
And now, with mounting evidence that the the global economy is stabilizing after its trade-related downshift, Mr. Poloz suggested that we’re about to see a lot of central banks join the Bank of Canada on the sidelines. He pointed to the Fed’s decision this week to end to its string of cuts.
“It looks like we might be bottoming at this point in time. I think that’s going to change the tone of lots of central banks as we move forward. We’re going to see a sense that, ‘okay, the worst is behind us,’ ” he says.
Still, the Bank of Canada’s wary eye on household debts is a reminder that this cloud over the economy, which was there when Mr. Poloz applied for the governor’s job, continues to darken the skies as he prepares to leave. Statistics Canada reported Friday that Canadians’ household-debt-to-disposable-income ratio stood at 175.9 per cent in the third quarter, down modestly from the record 178.5 per cent of two years ago, but well above the 164.1 per cent when Mr. Poloz took the job in mid-2013.
In a press conference this week, Mr. Poloz described those household debts as unfortunate “side effects” of the central bank’s persistent low-rate policy throughout his tenure – a stand he defended as necessary to keep the Canadian economy on track.
“They are secondary effects, they are not our prime mission,” he told reporters. “Our prime mission is to stabilize the economy and keep inflation on target, and we have succeeded with that.”
Indeed, Mr. Poloz feels his greatest accomplishment has been getting the Canadian economy back “home,” as he calls it – at full capacity with inflation on target – where, for all intents and purposes, it has been for most of the past year and a half.
“In 2013, when I gave my first speech, I talked about what it would look like as the Canadian economy got back home. ... I look now with a lot of satisfaction with having gotten there,” he says.
“I think one of the things that makes me most proud is that we had faith in our models, and in the people that form the judgments as those models get used," Mr. Poloz says. "It’s obvious, to me anyway, that central banking is a team sport. And I’ve been working with the best team you can imagine.”
But contained within this accomplishment is also his greatest disappointment: Parts of the country have been left behind, most notably the resource-heavy provinces of Alberta, Saskatchewan and Newfoundland and Labrador.
“If I have a regret, it is that – we kind of got home on average, but we’re not home everywhere,” he says.
This isn’t the first time the Canadian economy has had a split personality during Mr. Poloz’s tenure – early on, he was dealing with a high-flying energy sector and a manufacturing export sector crippled by a high dollar and still reeling from the Great Recession. But while these economic disparities have sowed regional tensions, Mr. Poloz argues that they are evidence of Canada’s economic strength.
“We have amazing diversity in our economy,” he says. “It’s that diversity that gives us resilience.” That’s why, he says, the Canadian economy can be doing reasonably well “in aggregate” even when a major segment of it is ailing.
But he recognizes that that may be small consolation to regions that are hurting – and that the Bank of Canada’s interest rates, which by their nature affect the entire country, can do little to address regional disparities.
“In the big picture, it’s resilience. In the little picture, if you’re sitting in Alberta and you’re unemployed because of what we’re going through, all I can do is say I’m sorry, because I wish we had the tools to make things more uniform across Canada. As a central bank, of course, we just have one tool, and so for us, it’s about the average performance.”
In his last five months on the job, Mr. Poloz plans to spend “as much time as possible” mentoring his senior staff at the bank – “talking to staff as much as I can about where I think they should be spending their energy,” in preparation for a transition to a new governor. Meanwhile, he will be relied on to keep a steady hand on the monetary policy rudder through some still-choppy economic waters.
Mr. Poloz isn’t yet ready to turn his attention to what he’ll do next, after he passes the keys to the next governor.
“I have a tremendous amount of work to do between now and when I’m done. So I’m focusing on maximizing what I do get done.”
“We’ll see what pops up.”