Implications south of the border as deputy governor departs from BoC

Change is afoot at the Bank of Canada (BoC), with potential implications for monetary policy south of the border.

Deputy Governor Sylvain Leduc will leave the central bank in late July, says a BoC release. Leduc will return to San Francisco to resume working at the Federal Reserve Bank of San Francisco.

Before his appointment to the BoC, Leduc served as vice-president, microeconomic and macroeconomic research, at the San Francisco Fed—a position he had held since 2013.

He was appointed deputy governor of Canada’s central bank in May 2016 and was one of two deputy governors responsible for overseeing the central bank’s analysis and activities.

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Top dog at San Fran Fed?

In a report, Derek Holt, vice-president and head of capital markets economics at Scotiabank, says there’s a “strong but as yet unconfirmed inference” that Leduc will become the San Francisco Fed’s new president, though Leduc has cited family reasons as a motivating factor for the move.

The San Fran Fed’s president post is currently vacant, after an April announcement that previous president John C. Williams is moving to the New York Fed later this month.

Holt expects Leduc would be a good fit for president. “Leduc’s range of research interests and familiarity with the San Fran Fed’s culture and operations would make him an excellent choice to head it up, if confirmed,” he says.

However, Leduc’s perspectives on issues such as the pace of Fed rate hikes and the terminal rate are unknown, adds Holt, since Leduc’s recent BoC commentary has focused only on Canada, for obvious reasons.

If Leduc does become the San Fran Fed’s new president, “he will be under immediate pressure to share his views soon after possibly taking over the post,” says Holt. That’s because the San Fran Fed president votes on monetary policy this year.

Process for new BoC deputy governor

The process to appoint a new deputy governor will begin immediately, says the BoC release, with the board of directors forming a selection committee.

In the meantime, Holt says BoC business will continue as usual.

“Leduc’s departure from a BoC deputy governor spot will not affect the regular conduct of monetary policy or carry market implications,” he says. He adds that the new deputy governor isn’t voted on: “just a discussion and the ultimate call is made by [BoC Governor] Poloz.”

Based on the last time a deputy governor spot opened up, Holt says the new spot could be filled within four months, by mid-October. The BoC would therefore be down one member on the governing council for the next two decisions on July 11 and Sept. 5.

Read the full report from Scotiabank’s Derek Holt.

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