Bank of Canada Taps Fed for Deputy Versed in Oil, Negative Rates

  • Sylvain Leduc joins Poloz on May 2 after San Francisco stint
  • Appointment comes amid debate about cutting below zero

The Bank of Canada plucked a researcher from the Federal Reserve Bank of San Francisco to help it navigate record-low interest rates and the lingering effects of a commodity shock.

Sylvain Leduc, currently a vice president at the San Francisco Fed, becomes the Canadian central bank’s newest policy maker starting May 2. The Montreal-born economist, 46, has published a string of papers in the last decade on subjects including the benefits of infrastructure spending, the links between exchange-rate swings and inflation, and extraordinary monetary policy.

“I am honored to have been selected as Deputy Governor, and delighted to be
returning home to Canada to serve the Canadian public in this role,” Leduc said in comments e-mailed by central bank spokeswoman Josianne Ménard, who said he wasn’t available for an interview.

Governor Stephen Poloz is seeking to deepen the central bank’s research as it tries to get a better handle on why Canada’s economy has struggled to grow despite interest rates at historical lows, and had been looking at francophone candidates strong in economic modeling. Among Leduc’s first tasks will be to shed light on why an export recovery has failed to materialize, even with a depreciating currency and gathering U.S. growth.

“He’s got a great tool set as an economist, both in terms of academic research and policy work and pragmatism with applying economic research to real-world issues,” said Daniel Wilson, a research adviser at the San Francisco Fed, who highlighted Leduc’s prowess in modeling international trade. He’s “a jack of all trades.”

Trudeau’s Turn

Policy makers are trying to deal with the effects of the oil crash and questions around whether manufacturing will help return the economy to normal next year as their forecast suggests. Poloz said Jan. 20 he was leaning toward cutting rates again before deciding to hold fire in order to see how much fiscal stimulus Prime Minister Justin Trudeau’s first budget would deliver. The bank is in uncharted territory as it contemplates whether to go to negative interest rates to spur growth.

“It is a relatively important time for the bank,” said Doug Porter, chief economist at BMO Capital Markets in Toronto. “This is arguably a more mixed time than I’ve seen in quite a while in terms of the Bank of Canada’s outlook.”

Leduc will assume responsibility for monitoring Canada’s financial system along with Deputy Governor Lynn Patterson, and replaces Agathe Côté, another Quebec native who retired at the end of January. He earned bachelor’s and master’s degrees in economics at McGill University in Montreal, and his doctorate at University of Rochester in 1999.

Infrastructure Experiment

Wilson and Leduc co-authored two papers on infrastructure spending, one of which showed the initial boost in growth from projects such as new highways can be fleeting. They also found there tends to be a second bump in activity a few years later when these projects are completed.

Leduc’s appointment comes as Canada embarks on its own infrastructure experiment. Finance Minister Bill Morneau signaled Monday the country will run deficits of about C$30 billion ($22 billion) in the coming fiscal year, some of that going to public works projects designed to spur growth. More details are expected at the March 22 budget.

“Sylvain Leduc’s central banking experience and deep understanding of the international monetary system make him an exceptional addition to the Bank’s Governing Council,” Poloz said in a statement Tuesday. “His expertise in economic modeling and policy will complement the skills and experience of his fellow Deputy Governors.”

Going Negative?

Canada’s economy is undergoing a complex adjustment from collapsing commodity prices, Poloz said last month. The central bank cut rates twice last year to buffer the effects of the oil shock, and in January it reduced its 2016 growth forecast to 1.4 percent from 2 percent.

Leduc gave a presentation at the Bank of Canada in November 2013 titled “The Effects of Unconventional and Conventional U.S. Monetary Policy on the Dollar.” Poloz has also addressed the subject, saying in a December speech the bank has tools such as negative interest rates and quantitative easing to stabilize the financial system in the event of another shock.

“I expect the new guy will be placed right into the thick of it,” said Helmut Pastrick, chief economist at Central 1 Credit Union in Vancouver. “Overall, a person with this background will fit right in and make contributions to achieving the Bank’s goals.”

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