Dear Governor Poloz: Your closed-door speech is a bad idea

Originally published at BusinessInCanada.com

Dear Governor Poloz,

First off; let me say congratulations: by the time the next interest rate decision is published, you will have held the top spot at the Bank of Canada for 15 months.

You’ve had some big shoes to fill – your predecessor is commonly referred to as a “rock star,” a title not often bestowed upon those in your line of work. But after walking a few miles in his shoes, you’ve proven to be more than up to the task of setting monetary policy to shepherd the Canadian economy through still-rocky waters. Not only that, but you’ve put your own stamp on the institution, and don’t get nearly enough credit for the good work you’ve done.

Under your leadership, the Bank removed the tightening bias (which was long overdue, might I add),  introduced a press conference following the publication of the Financial Stability Review to better explain these risks, and admitted the fallibility of the your models.

These were the actions of a central banker who has a deep commitment to honesty and transparency.

That’s why I’m distressed to learn that you’ll be delivering a closed-door speech to members of the Canadian Association for Business Economics (CABE) in Kingston on August 25, as Bloomberg’s Greg Quinn was the first to report. I fear that this decision risks diminishing any goodwill garnered through your previous actions, as the optics of this event are unquestionably negative.

“As a rule, it is preferable to have all comments on the public record to ensure complete transparency from the central bank,” said Bank of Montreal senior economist Benjamin Reitzes, who added that he does not doubt your trustworthiness in this regard.

(Reitzes, I should also note, is a member of the Toronto chapter of CABE, but is unable to attend your speech.)

Governor, you wield an immense amount of power over the Canadian economy. You’re also an unelected official – and rightly so, as monetary policy ought to be free from political influence. However, in large part due to the response to the financial crisis, there is a swath of the population that has become increasingly disillusioned with central banks, and is often downright hostile towards them. This vocal minority considers monetary policymakers to be complicit in the bail-out of financial institutions who profited at the expense of Joe Q. Public, beholden to Wall (or in this case, Bay) Street, and responsible for a huge spike in inflation that is either right around the corner or has already occurred but isn’t adequately reflected in the metrics.

While I think we’d both agree that such views are uninformed, you are handing ammunition to this vocal minority by choosing to deliver a private speech to a group of people who are very likely all in the upper quintile of income earners in this country. You’re giving the impression that you either have something to hide, or something to share that isn’t fit for public consumption. Canada has already endured one blow to a very important institution this week; don’t weaken the nation’s faith in another.

Now, if you intend for this to be a free-flowing discussion between yourself and the attendees, then the benefits of privacy are rather plain to see. It would help certainly help elicit more candid responses from your audience if they had assurance that their comments would not be the subject of public scrutiny.

But if this is a typical Polozian speech – chock full of mixed metaphors and valuable insights – then I fail to see any possible benefits of privacy, and fear you are depriving the public of an opportunity to learn about your view of the world. Since changes in your outlook can have an impact on the mortgage rates Canadians pay and how expensive it is to vacation south of the border, all of us – not just a select group – deserve to know your thoughts.

You’re also cutting it pretty close when it comes to the Bank of Canada’s blackout guidelines, which forbid members of the Governing Council or other senior representatives from delivering speeches or communication with the media one week prior to an interest rate announcement that does not include a Monetary Policy Report. Your address at CABE takes place just nine days before the Bank’s next announcement. These central bank decisions move markets – and yours have had a larger effect than most of your peers’. It’s easy to jump to the conclusion, perhaps unfairly, that those attending your speech are getting an exclusive preview of the following week’s interest rate decision. If there were a right time to deliver a private speech, August 25 certainly isn’t it.

And despite CABE’s directive that your speech will be off-the-record, it is naïve to assume that this will be the case. As BMO’s Reitzes told us, “[Attendees] will likely tell trading floors and clients what [you] said.”

Remember when former Fed Chair Ben Bernanke delivered a speech at a pricey dinner earlier this year?

Here’s what ensued, per Reuters:

At least one guest left a New York restaurant with the impression Bernanke, 60, does not expect the federal funds rate, the Fed’s main benchmark interest rate, to rise back to its long-term average of around 4 percent in Bernanke’s lifetime, one source who had spoken to the guest said…

Another dinner guest was moved when Bernanke said the Fed aims to hit its 2 percent inflation target at all times, and that it is not necessarily a ceiling.

“Shocking when he said this,” the guest scribbled in his notes. “Is that really true?” he scribbled at another point, according to the notes reviewed by Reuters.

The sources requested anonymity because the dinners were private and they were not authorized to discuss the material publicly.

Journalists will be on the phone trying to learn any colourful comment you might have made the moment your speech is over. By electing to hold it in private, you’ve made any potentially actionable information that does come out all the more valuable, that is to say, market-moving, because it has been steeped in secrecy. You’re also increasing the odds that reported comments get taken out of context, which may cause you to stumble into a communications challenge of your own making.

If you fear your speech is rather wonkish and that it won’t be easily understood by the average person, as CABE organizer Paul Jacobsen seemed to suggest, that’s no excuse. Give folks like me a chance to talk to experts and learn exactly what it is that you’re saying, then break it down into digestible nuggets that others can understand. We’re up to the task.

Governor, it’s not too late to request that your speech be opened up to the press. It is my sincere hope that you do so.

Best,

Lucas Kawa