News & analysis

Following on from an article published in the Globe and Mail (see at bottom of the page), it looks like Finance Minister Bill Morneau’s time could be up in government.

Speculation isn’t rife just because of the charity scandal, where C$41,000 in travel expenses for his family for trips to Kenya and Ecuador had been written off, but it is also reported that tensions are high between Morneau and Trudeau on how best to revive the Canadian economy. It is reported that Mark Carney, former Bank of Canada and Bank of England governor, is an informal confidente of Prime Minister Trudeau’s, only adding fuel to the rumours that Bill Morneau’s time could be up in Trudeau’s cabinet ahead of Parliament reconvening in September.

While it remains all speculation to date, the appointment of Mark Carney as Bill Morneau’s replacement might actually be welcomed by markets.

Here is why:

  • Mark Carney has a fantastic record of managing policy decisions through crises. Whether it be as the Governor of the Bank of Canada during the global financial crisis or as the Governor at the Bank of England during the Brexit referendum and the beginnings of Covid-19, Carney seems to be the man of the moment when an economic shock comes calling. He navigated both crises well, stemming the potential externalities without bowing to the growing pressure for unconventional stimulus – whether it was quantitative easing in the wake of the GFC or insurance rate cuts in response to the 2019 General election. Carney’s tenure as a monetary policymaker has been tempered and on the whole, effective.
  • Carney has also dipped his toe in politics before. Having to navigate the Bank of England through one of the most divisive political events in decades, monetary policy quickly took political connotations. The media saw the Bank of England’s scenario analysis of the Brexit referendum as “scaremongering” by the central bank, trying to drive public opinion away from Brexit, and later on a hard Brexit result. Carney refused to back down from the increasing pressure and navigated the Bank of England through the event while still providing economic analysis, avoiding provocation in press conferences to wade into politics. During his tenure, Carney maintained the credibility of the Bank of England, while furthering financial stability post GFC and extending environmental goals for monetary policy. The focus on environmental goals also means he is well suited within the Liberal Party, where fiscal policy could well be targeted in the coming quarters.

Even though it is just speculation at present, Carney is unlikely to refuse the offer should it be presented to him. Unlike the previous two economic shocks he faced at the helm of the BoC and BoE, the nature of the Covid-19 shock is suited towards fiscal policy.  As a career economist, Carney is unlikely to turn away from the opportunity of sitting in the driving seat in response to another economic shock. The only question is, if he takes the job, where next for Mark Carney?

G&M article:

https://www.theglobeandmail.com/canada/article-morning-update-finance-minister-bill-morneaus-job-in-jeopardy-after/

 

 

Author: Simon Harvey, FX Market Analyst

 

 

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