Crush it: Bank of Canada Governor Tiff Macklem says a crisis is no time for half measures

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Tiff Macklem, the Bank of Canada’s new Governor, knows that his reputation for cool in the face of a crisis was one of the things that won him the job. He earned it in the trenches of the previous global financial crisis, where, as part of the country’s inner circle dealing with the emergency, his clear thinking and international Rolodex helped safely steer Canada’s economy and financial system from potential disaster.

As he settles into his new role in the midst of what may be an even bigger threat, he sums up a key lesson he learned from that previous experience in two words.

“Crush it.”

“When you’re faced with a real crisis, you have to step beyond the normal responses. You have to have the mentality that you need to overwhelm this crisis,” Mr. Macklem says. “You have to do probably more than you think you’re going to need to do, and certainly more than many people will tell you you need to do.”

There’s no mistaking the significance of this approach as Mr. Macklem – the former second-in-command at the bank who was passed over in his first bid for the governorship – takes the reins of arguably the country’s most powerful economic office, in circumstances unlike any that have ever faced an incoming governor.

As Mr. Macklem sits down with The Globe and Mail for an exclusive interview, it’s six months since the World Health Organization declared a global pandemic – six of the most tumultuous months in economic history. He inherited an aggressive array of measures put in place by his predecessor, Stephen Poloz, which included slashing the bank’s policy interest rate to a record low and launching the bank’s first-ever foray into buying large quantities of government bonds – what’s known as quantitative easing (QE). The bank’s scramble to inject cash into a sputtering financial system caused its balance sheet – essentially, its holdings of financial assets – to quadruple to more than $530-billion.

So far, Mr. Macklem’s brief time in office has largely been a case of maintaining the policy path laid out by his predecessor. Still, with the pandemic and its economic fallout still far from over, we’ve seen a few early glimpses of what “crush it” might look like.

The bank has adopted a more bearish view on the post-COVID recovery than it had under Mr. Poloz, a self-acknowledged optimist. It has issued an explicit pledge to maintain rock-bottom interest rates until the economy has fully recovered. Mr. Macklem has effectively positioned the bank to hold its key rate at a thin 0.25 per cent – what he terms the “effective lower bound,” bank-speak for the bottom – until 2023. Meanwhile, he consistently resists the suggestion that he should at least ease the throttle on the bank’s bond purchases.

The new public face on all of this is a career public servant who until now has done most of his best work a step or two removed from the public spotlight, in key supporting roles at the central bank and, during the financial crisis, the federal Finance Department. (He spent the past six years as dean of the University of Toronto’s Rotman School of Management.) At his core, he’s an economic researcher; friends and colleagues describe him as quietly brilliant with a deep understanding of economic data and a gift for marrying the numbers to the real world. Those qualities may be tested as he steers Canada’s suddenly very complicated monetary policy through this crisis - while also presiding over what could prove a transformative period for the central bank’s mandate.

“Obviously, it’s a very strange time to start a new job – for anybody starting a new job,” he says. “But I really feel like I’m in the right place.”

Indeed, Mr. Macklem’s introduction to his new job had a comical strangeness to it – a story he gleefully shares over a coffee at The Globe’s headquarters one mid-September afternoon.

On a rainy April 30 evening, he found himself in a near-deserted Ottawa hotel at the height of the COVID-19 lockdowns, at the end of what had been a crazy day. A few hours earlier, he had received a phone call at his Toronto home from Prime Minister Justin Trudeau, asking him to take the governorship – followed within minutes by a second call telling him that a driver was on his way to whisk him to Ottawa for the announcement the next morning. With no restaurants open and no room service available, he sat alone in his room, eating a pizza he’d ordered via Skip The Dishes.

As he was about to bite into the last slice, a thought occurred to him: He had the biggest press conference of his life in the morning, and he had no idea where he was going to find breakfast.

“So I was like, ‘I know, I’ll keep this piece of pizza and I’ll put it in the mini-bar here.’” He got up the next morning and scarfed down the cold slice before setting off for his public unveiling as the next governor.

“Perhaps not as glamorous as some people might think,” he chuckles.

Mr. Macklem turned 59 in June, just one day after he officially took over as governor. He could pass for younger. His full head of hair has just a hint of grey, and there’s still something boyish about his face. At first glance, he’s unimposing: slim and not particularly tall, bespectacled, reserved – maybe even a bit shy. These traits might explain why he largely flew under the public radar in his three years as second-in-command during the governorship of Mark Carney – serving as sidekick to a famously charismatic personality who tended to command any room he was in.

But Mr. Macklem smiles easily as he becomes more comfortable with the conversation. And hidden inside his banker-blue suit is the fit, trim physique of an athlete.

His sport of choice is skiing – snow in the winter, water in the summer. He prefers the winter. (“February is one of my favourite months,” he says.) Cross-country around Ottawa, downhill at Mont Tremblant, backcountry in the Whistler/Blackcomb area – he’s passionate for it all. And he’s very good.

“He is an exceptional skier. While I have skied a lot over the years, he was always out of my league to a pretty serious degree,” says Mike Shetler, who has been friends with Mr. Macklem since grade school.

Richard Tiffany Macklem grew up in the well-to-do Montreal enclave of Westmount, his father (also named Richard) the chief financial officer of the Henry Birks and Sons jewellery company. While his friend Mr. Shetler insists that neither of their families was particularly wealthy, they certainly rubbed shoulders with some of the city’s elites while attending Selwyn House private boys' school – which counts Bronfmans, Molsons and Desmarais among its alumni. The two boys were fixtures at the Montreal Badminton and Squash Club, becoming avid squash players.

No one would have tagged Mr. Macklem for a future in economic policy-making when he was at Selwyn House. He disliked mathematics and took the bare minimum in high school, gravitating instead to geography, history and English literature. “I think probably my math teachers in high school are the most surprised by my career choices,” he says.

When he began at Queens University in Kingston, he was a geography major. But when he took a couple of economics electives in his first year, he got hooked.

“I could feel myself being drawn in by the economics courses,” he says. “Economics really helped me understand how the world was working.”

He switched his major to economics and graduated with honours in 1983, before pursuing graduate studies at the University of Western Ontario, which in the 1980s was a global hotbed for monetary research and a leading force behind inflation targeting – at the time a radical idea, today widely practised among the world’s central banks. (Mr. Poloz graduated from the same program, a few years ahead of Mr. Macklem.)

By then, Mr. Macklem’s relationship with numbers had improved; he had a reputation among his fellow students as being on an entirely different level when it came to statistics and mathematical modelling. Classmate Jeffrey Racine, now a professor at McMaster University, remembers Mr. Macklem identifying a “limitation” in the methodology of a paper the students were studying in an econometrics class, and actually getting published an addendum to the original paper that provided a solution to the methodological problem.

“Once I saw the use of math, I really quite enjoyed it,” Mr. Macklem says.

Mr. Macklem joined the Bank of Canada shortly after completing his master’s degree in 1984, and except for a few interludes (a return to Western to complete his PhD in 1989, a stint in the Finance Department, his time at Rotman) he has been a career central banker. His top-notch work as the bank’s head of research prompted then-governor David Dodge to promote him to deputy governor in 2004. In that role, he worked on international files for the bank – forging relationships that continue to this day with economic leaders throughout the Group of 7 and G20. He became known to his foreign counterparts as a guy who was both easy to like and who brought strong insights to the table.

“He’s a first-rate analyst – but we have a number of people at the bank who are very good analysts. Tiff had that judgment capacity, over and above that straight analytic capacity,” Mr. Dodge says. “He looked at the world and tried to bring to bear the general economic and social context in which we were doing the analysis. He was not a slave to the economic models.”

But it was a period away from the bank, when he served in the Finance Department from 2007 to 2010, that cemented Mr. Macklem’s reputation as a go-to leader in an international crisis. As an associate deputy minister, Mr. Macklem played a central role in designing the stimulus program for Prime Minister Stephen Harper’s government, and in Canada’s significant contribution to global efforts to overhaul financial regulation. He was able to tap his global connections to give Canada an important pipeline to the international discussion during that complicated time.

“The global financial crisis was on a scale that none of us really had dealt with before,” he says. “You really learn how things work when they don’t work.

“It forces you to really get back to basics – how do things work at a very basic, fundamental level.”

Mr. Macklem gives his predecessor “very high marks” for the bank’s response to the pandemic last spring – quickly slashing its policy interest rate from 1.75 per cent to a record-low 0.25 per cent, pumping liquidity into stalling financial markets, launching QE. Nonetheless, the bank has gone a step further under Mr. Macklem’s watch.

One of his first acts as governor was to commit the bank, explicitly, to keeping its policy rate at the current low “until economic slack is absorbed so that the 2 per cent inflation target is sustainably achieved” – the phrase the bank incorporated in July into the statement that accompanies its rate decisions. Markets have interpreted that as unlikely before 2023. It’s what people in the central banking biz call “forward guidance” – a powerful instrument in transmitting policy to financial markets that Mr. Poloz had long been reluctant to pull out of the bank’s tool box. It signalled right out of the gate that the new governor meant business.

“His messaging ... was remarkably transparent, where he essentially told borrowers that they had no fear of higher interest rates for an extended period. That’s about as Main Street as we can get with forward guidance,” says Bank of Montreal chief economist Doug Porter, who was a classmate of Mr. Macklem’s at Western.

Mr. Macklem may prove to be less aggressive than some observers anticipated when it comes to a longer-term crisis facing the economy: climate change. He came into the job with a green reputation – two years before Mr. Trudeau chose Mr. Macklem to lead the central bank, the Prime Minister had tapped him to chair the government’s Expert Panel on Sustainable Finance. But while Mr. Macklem feels strongly about the urgency of the climate threat, he says the Bank of Canada has a decidedly limited role in addressing the issue.

“What is the Bank of Canada’s piece in this? Well, first of all, it’s really important that we have a really good understanding of how climate change, how the transition to greener growth [is] impacting the Canadian economy,” he says. “We need to have a very good understanding of the implications for the financial system.”

“Our part in this is relatively small. There are a lot more things that others have to do. Ultimately, it’s going to come down to the private sector.”

As Mr. Macklem crosses his legs and takes a sip of his coffee, it’s impossible to miss the comically bright rainbow-striped socks peeking out from beneath the legs of his conservative suit. His friend, Mark Wiseman, says that’s entirely in character.

“He’s one of those people who has a bit of a twinkle in his eye. He can definitely pull your leg,” says Mr. Wiseman, former head of the Canada Pension Plan Investment Board who is now chairman of AIMCo, the Alberta government’s public-sector pension manager.

“He’s a lot of fun. He’s not the staid central banker that you might imagine.”

Mr. Wiseman recalls one evening in New York when he and some American associates met up with Mr. Macklem, then the Rotman dean. In a bit of boasting about his friend’s old job as the Bank of Canada’s senior deputy governor, Mr. Wiseman pulled a Canadian $20 bill out of his wallet and showed off Mr. Macklem’s signature imprinted on the money. Mr. Macklem responded by autographing the bill and handing it to one of the Americans as a souvenir. Then he proceeded to make similar souvenirs for others at the gathering – all with bills plucked from Mr. Wiseman’s wallet.

“It probably cost me about 200 bucks,” Mr. Wiseman laughs.

Mr. Macklem is just as willing to poke fun at himself. At Rotman, he made a video for student orientation a couple of years ago parodying the “Kiki Challenge” dance craze from Drake’s In My Feelings – cutting some hilarious moves that few had expected from their usually publicly reserved dean.

Mr. Macklem took the Rotman job in 2014, leaving the Bank of Canada a year after he was passed over for the governorship in favour of Mr. Poloz. While he says he wasn’t unhappy working under Mr. Poloz – an old friend who had originally hired him at the bank – “I did begin to reflect on what was the next leg of the journey. ... Then I got a call about the Rotman job, and one thing led to another.”

Associates of Mr. Macklem suggest his time at Rotman – during which he also sat on the board of Bank of Nova Scotia – helped fill some gaps in his experience and left him better prepared for the governor’s job than he would have been had he landed it in his first try. To that point, his entire career had been within the walls of Ottawa institutions; his only work experience in the private sector had come from summer jobs (camp counsellor for hearing-impaired children while in high school, driving a moving truck around Montreal when he was in university). The work at Rotman and Scotiabank gave him new perspectives on the business community and the financial sector.

Mr. Macklem doesn’t disagree.

“That time spent engaging with the private sector, I think, has given me another lens,” he says. “The private sector is what creates jobs. The private sector is what invests in the economy.”

Those who worked with Mr. Macklem at Rotman say he quickly won over the skeptics who initially questioned his lack of background as an academic. Under his leadership, the school substantially expanded its research work, creating and expanding new research centres in areas such as gender and the economy, behavioural economics, data analytics and financial innovation.

“He’s just a consummate professional. It’s no drama. It’s very honest and open, and very team-driven,” says Kenneth Corts, Rotman’s interim dean, who was vice-dean under Mr. Macklem. “He had a very good personal connection with his team as well.”

“I really enjoyed being the dean of Rotman. It was an opportunity to spread my wings a bit,” Mr. Macklem says. “To be honest, when I left Ottawa and started at Rotman, I really didn’t think I would be back.”

But after Mr. Poloz announced last December that he wouldn’t seek a second seven-year term, “I could tell, deep down, I still wanted that job. At the beginning, I’ll admit, I tried to push the thought away, but it kept coming back.”

COVID-19 has made Mr. Macklem’s return to Ottawa and the Bank of Canada unconventional. He is shaping Canada’s unusually complicated monetary policy not from an office in the Bank of Canada’s headquarters, but from the basement of his new Ottawa home. He is meeting with his senior staff only virtually. When we sit down for our interview, it’s Mr. Macklem’s first actual physical outing since he started the job; his speeches and press conferences have all been via video conference.

The economic news has actually provided Mr. Macklem some breathing room in his first few months, which have been marked by a strong rebound as activity has reopened after the spring’s lockdowns. The governor himself has cautioned that things will get more difficult beyond this reopening stage. The same can be said for the job Mr. Macklem has ahead of him, as the prospect of a second wave of the pandemic further clouds economic prospects.

“So far, he’s shown encouraging signs ... but in general, the big tests still lie ahead," Bank of Nova Scotia economist Derek Holt says.

Meanwhile, Mr. Macklem and his colleagues are pushing ahead on a major item on their agenda that would be ambitious even without the COVID crisis. The bank is in the midst of a major review of its mandate – indeed, the biggest in decades – that will culminate, sometime in the fall of 2021, in a new five-year agreement with the federal government on the bank’s policy framework. The result may well be significant changes to the inflation-targeting regime that has rooted Canadian monetary policy for a quarter-century.

The bank is seriously considering several alternatives to its long-standing 2-per-cent inflation target, including targeting price levels rather than inflation rates; seeking a 2-per-cent average over time rather than a firm target; and adding a full-employment objective in addition to an inflation target, similar to the “dual mandate” of the U.S. Federal Reserve.

It’s a lot to chew on in the middle of a pandemic. But Mr. Macklem says he never considered scaling back the ambitious mandate review, or opting for the safety of the status quo in light of the crisis.

“We’ve entered a world with lower trend interest rates. The equilibrium real interest rate has come down, it looks like it’s going to be low for a long time. That means, in practice, we are going to be hitting the effective lower bound more often,” he says. “That is an important issue – as we look at inflation targeting, how do we adapt to that reality?”

Indeed, the crisis has made many elements of the job more daunting than they looked to Mr. Macklem last winter, when he decided to pursue the job. But it seems to have only strengthened his resolve.

"As [the pandemic] spread rapidly, and you could see very clearly the huge economic consequences it was going to have, on the one hand, [I did] sort of go, ‘Oh my God, this is going to be an even bigger job than I imagined!’” he laughs. “On the other hand, I just felt more and more that I couldn’t stay away. I felt that I had to be there.”

Tiff trivia

BORN: June 4, 1961, Montreal

PARENTS: Richard (Dick) and Janet Macklem, ages 90 and 86

SIBLINGS: Two sisters, live in Montreal

SPOUSE: Rosemary Macklem, CPA, an executive at accounting firm KPMG LLP

CHILDREN: Two boys and a girl, ages 25 to 29.

READING LIST:

He leans toward non-fiction. “I like to mostly read true stories, just because I find them really compelling - they’re true, this really happened!”

Educated, by Tara Westover

The Spy and the Traitor, by Ben Macintyre

Fiction: Louise Penny’s Chief Inspector Gamache mysteries, which are set in the Eastern Townships. “They’re beautifully written, they’re easy to read, and all the towns that are mentioned in the book are all places that I know.”

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