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The Bank of Canada’s Carolyn Wilkins got to do something on July 13, 2016, that none of the nine men who preceded her in the role of senior deputy governor had ever done: play governor.
Wilkins, who had been elevated from the rank of adviser to second-in-command two years earlier, delivered the opening statement at the central bank’s quarterly press conference as Stephen Poloz, the governor, sat quietly by her side.
Poloz wanted to signal that monetary policy was a team sport and not all about him. The moment also marked Wilkins’ arrival as a serious policy-maker, as it brought public recognition of an expanding role behind the scenes. She and Poloz would alternate leading the quarterly press events for the rest of Poloz’s tenure, which ended in June.
In the process, Wilkins became the first senior deputy governor who stood a chance of being recognized in public. It wasn’t enough to convince Prime Minister Justin Trudeau’s government to make her governor, but it’s something she can shove in the face of those who used to sniff at her lack of PhD in economics.
Wilkins, who made the shortlist to replace Poloz, prepared for her job interviews while also helping lead the Bank of Canada’s epic response to the COVID-19 crisis, standing up the bond-buying programs that marked the central bank’s first attempt at quantitative easing, or QE. Tiff Macklem, who won the job, was in Toronto, overseeing the Rotman School of Management.
There were no grudges. Wilkins and Macklem were old colleagues and she counted herself among his many admirers. “I’m really enjoying working with the new governor,” Wilkins said in an interview on Sept. 21, her first public comments since the Bank of Canada announced on Sept. 17 that she would resign when her term ends next spring. “We go back a long way, so it’s been a lot of fun.”
Still, summer had provided time to reflect. “You get on vacation and you think about what you want to do next,” she said.
Wilkins arrived in Ottawa from small-town Selwyn, Ont. — via Wilfrid Laurier University in Waterloo, Ont., and the University of Western Ontario in London — more than 30 years ago. Even though she has worked her way into “one of the best gigs in town,” she ultimately decided it was time to do something else.
“Once you’ve made that kind of decision, it’s really the responsible thing to do, to let the minister of finance know … as well as the governor and the board of directors, so that they can get on with the business of trying to find my replacement,” she said over a video-link from Ottawa.
Wilkins, who turned 56 in March, said she doesn’t know yet what she’ll do next. The gossip in Ottawa is that she could be the next deputy minister of finance, a technocratic post that would lack the profile of Bank of Canada governor, but offer just as much influence. She declined to comment on the rumours.
“I’m in the process of thinking about it, while at the same time being devoted to the job that I still have at hand,” she said, referring to her future generally, not the specific possibility of serving as Finance Minister Chrystia Freeland’s top bureaucrat. “There’s a lot to do here. I’m hoping that after 32 years in Ottawa that I will find a new way to contribute. That’s really all that I have to say for now.”
Wilkins means it when she said she still has a lot of work left to finish.
To start with, there are five interest-rate decisions between now and May 1, 2021, and while it seems like monetary policy is on cruise control, the Bank of Canada hasn’t yet declared victory on its front in the battle against the aftermath of the pandemic.
There’s a lot to do here
Regardless of what happens with the economy, Wilkins will be focused on wrapping up a years-long research project on whether the Bank of Canada should for the first time in a generation overhaul the way it sets interest rates. Poloz put her in charge of the effort in 2017, and the deadline for the finance minister and the central bank to agree on a new five-year mandate for monetary policy is the end of 2021.
“We’ve made a lot of progress. The hope is that we’ll be able to collect all of that by the end of the year,” she said. “That’s really going to be putting us in good stead next year, the first part of the year, to think about recommendations.”
Wilkins’ review is the most comprehensive since the inflation target was adopted in 1991, as a wish list of alternatives is being tested against the current approach in sophisticated models. She has also made an unprecedented effort to engage the public, including an ongoing survey designed to gauge attitudes about inflation.
The work with regular folk has generated some surprises. The Bank of Canada discovered that a critical mass of people is highly skeptical of the Consumer Price Index, the central bank’s preferred measure of inflation. That matters because if people don’t have faith in what the Bank of Canada is doing, then policy probably won’t work.
“They think the price increases that they’re facing are higher than they are measured by Statistics Canada’s measurement,” Wilkins said. “Perceptions are really quite important. Da Vinci said all of our knowledge has its origins in perceptions and I think that’s true. So we need to understand, why is that?”
Policy-makers also are learning things about the labour market.
Wilkins said she has received “very important” feedback on labour markets. The assumption when the Bank of Canada embraced inflation targeting was that lower interest rates would put upward pressure on wages, and, therefore, inflation. But the workers the central bank has been talking to say that assumption is no longer valid.
“Now it takes a lot more heat in the labour market, according to them, to generate inflation,” Wilkins said. “If that’s the case, maybe we should change our models or maybe we should change how we react to what we see, if we ever see tightness in the labour market. They really put us to a challenge to think about those things (and) to see how we can integrate them into our framework.”
Wilkins might have her eye on the exit, but she’s not gone yet. Like she said, there’s a lot of work to do.
Copyright Postmedia Network Inc., 2020