Stephen Poloz has reached the mid-way point of his seven-year term as head of the Bank of Canada – a period marked by a wrenching commodities crash, slow growth and serial disappointment in the country's trade performance.
But as he sits in a staid boardroom – in a crisp banker's-blue pinstripe suit – and reflects on what he has accomplished in a job that's equal parts high-powered chief executive officer and celebrity, Mr. Poloz's thoughts turn to casual Fridays.
"I got [the staff] to wear jeans on Fridays," he says, with a smirk and a twinkle of the eye. "You have no idea how much of a cultural shift that is."
As his time in the governor's chair has become more difficult than anyone had expected when he took the reins in mid-2013, his sources of pride and fulfilment have increasingly centred on his work at the office, and his efforts to loosen its formal, buttoned-down culture as he and his colleagues adjust to the untidy realities of the postfinancial-crisis era.
In earlier days, he enthused about the external side of his job, talking with Canadians and spreading the bank's message. But as the tasks of forecasting and guiding the economy have gotten tougher, his enthusiasm is now more focused on the intellectual challenge that he and his staff face in trying to solve the riddle that the Canadian economy has become.
"It's a highly reflective, very thoughtful, cerebral, academic type of environment," he says. "It has given me the opportunity to spend more time thinking, reading the research, generating new ideas."
Blue-jeans Fridays are emblematic of Mr. Poloz's goal to have a more open, frank exchange of ideas among his staff, dispensing with some of the formalities that go with his high rank – "playing less the role of a boss and more of a collaborator," as he puts it.
That emerging culture of creativity and team spirit that Mr. Poloz has tried to instill at the central bank is about to take another step forward as the bank prepares to return to its thoroughly refurbished headquarters in downtown Ottawa.
Over the next two months, roughly 1,600 bank employees will migrate back to Arthur Erickson's modernist twin towers, after a three-year, $460-million renovation. The building dispenses with the traditional rows of bankers' offices in favour of open floors, interspersed with "alternative work zones" along windowed walls, where employees can step away from their desks and work together at bar stools or soft couches while taking in views of the nearby Parliament buildings, the Ottawa River and the Gatineau Hills.
"I'm most proud of our staff," he says. "They've been inventive, creative. They were very open to new ideas, and openly investigated anomalies, and came up with new ways of doing things and looking at things."
That's the more private part of Mr. Poloz's job. The side most Canadians see – his public role as the voice of monetary policy, the primary source of communication about how the central bank views the economy and the country's prospects – remains a work in progress.
While the governor is less prone to drifting off-script than he was in the earlier days of his tenure, the financial markets still struggle at times with interpreting the message the central bank is sending. This reared its head again in the bank's October interest-rate decision, when the markets misread the bank's characterization of risks after it had cut its economic forecasts. The Canadian dollar briefly went up, and investors were thrown for a loop when Mr. Poloz revealed shortly thereafter that the bank had considered a rate cut.
"We learned something from that," he says. "I don't want to claim that we're perfect, or that I'm perfect, that's for sure."
But he believes that those market misreads are largely a function of the more transparent communication style the central bank has adopted under his leadership.
The Poloz Way includes laying out the bank's assessment of risks to its outlook in more detail, telling a more nuanced story with every rate announcement, sharing more information about the policy-setting Governing Council's deliberations, and publishing a greater range of current research from the bank's economists and analysts. (Notably, the bank still doesn't publish minutes of the council's rate-decision meetings, as many other major central banks do; Mr. Poloz has argued that this would inhibit precisely the kind of open and frank sharing of ideas that he favours.)
"It's transparency in a form that allows the market to function," he says, arguing that markets are more efficient when they are interpreting economic data through the lens of the central bank's assessment of risks than if the bank were to simply tell them its future policy plans – the so-called "forward guidance" approach that his predecessor Mark Carney used and that Mr. Poloz stepped away from in 2014.
"For me, to be able to look out and see what markets are assuming or discounting that the Bank of Canada is likely to do over the next 12 to 18 months – I can see that in the market – and I can see how that has changed over the last, say, six to eight weeks, that's very informative to us," he says. "The market takes the same information that we get, and translates that into this sort of summary opinion … when a new data point comes next week and that [opinion] changes, that's very informative."
"But if instead of letting that happen, we said, 'Well, here's what we're planning to do,' then all that information would be washed out of the system."
It's been a difficult 2016 for Mr. Poloz, as the Canadian economy see-sawed through the wild distortions in economic data that stemmed from the Alberta wildfires and a distressing backslide in exports. The central bank ends the year forecasting that the economy is still about 18 months away from a return to full capacity – about the same time frame that it was hoping for a year ago.
Mr. Poloz readily admits he never imagined the Canadian economy would still be this far from "home." In a normal recovery, exports, particularly to the strengthening U.S. market, would have stormed back, putting the economy on course toward full capacity. It's happening, but at a much slower pace than he or the bank's army of economists expected.
But Mr. Poloz bristles at the suggestion that the bank is now essentially operating "in the dark" because its powerful computer models – including its Terms-of-Trade Economic Model or ToTEM II – misjudged the scale and timing of the export rebound.
"Those models have been indispensable," Mr. Poloz insists. "Even when they are wrong, you say, 'I can explain it, so I can correct it enough to … tell me what my policy scenario should look like.' You simply can't do that arithmetic on the back of an envelope."
Mr. Poloz argues the bank's models captured the "big story," including the impact from the oil shock and the divergence on interest rate trends between the U.S. Federal Reserve and much of the rest of the world.
The bank did, however, initially underestimate the massive loss of export capacity in Canada during the recession of 2008-09, which battered the manufacturing sector. That loss of capacity is the equivalent to roughly $40-billion in missing economic output.
Mr. Poloz said a persistent "intangible" affecting the bank's forecasting ability has been uncertainty, including the lack of business confidence, much of it driven by political events such as the Brexit vote and the U.S. election.
"Our models can't really predict how much uncertainty there is and how much it will affect decisions," Mr. Poloz says. "No one can."
Looking ahead, Mr. Poloz also frets about rising protectionism, which he says began long before the U.S. election. Canada's economy is inexorably tied into sprawling global supply chains, designed to make companies more efficient. Impair those linkages, he warns, and the economic consequences could be severe for all countries in the chain.
"That could be a recipe for a really expensive product that would not sell very well," he says. "And so you could lose all the jobs, instead of some of the jobs … It's not obvious that suddenly, if you put in a protectionist measure, that your economy will do better. It just isn't."
But he dismisses as "hypothetical" the notion that Canada will automatically be the loser or that president-elect Donald Trump's protectionist rhetoric will lead to a permanent impairment of Canada's export capacity. Trade, he says, has become too globalized and complex to disentangle, or predict.
"It's not us and them," he says of global trade. "We are making stuff as a team. It's very complex to disrupt it and be confident about what the results might look like."
The central bank is also grappling with the thorny consequences of a slower-growth world. It's largely a demographic story. The expansion of the labour force is slowing because the age profile of most developed countries is getting older. That is putting the brakes on GDP growth in Canada and other industrialized countries.
The destruction of a chunk of Canada's export capacity during the last recession hastened the downshift. Over the past two years, the Bank of Canada has steadily scaled back its estimate of the economy's future growth potential by 25 per cent.
But in his typical glass-half-full perspective, Mr. Poloz isn't dwelling on the dark side of a slower-growth future. "I don't think it's right to be entirely pessimistic about it," he says.
He talks enthusiastically about "great new technologies," such as robotics, that will drive productivity and incomes higher, freeing many workers to do other tasks and expanding the economy's overall potential. For example, factory workers may become home builders.
"Technology is not the issue," he argues. "It is the driver of higher welfare for all of us. We have to find the rest of the supports – checks and balances – to make it work."