Prime Minister Justin Trudeau wasn’t the only one in Ottawa who stunned pundits in 2015. Last January, Bank of Canada governor Stephen Poloz shocked everyone by cutting interest rates. The move caused consternation. The public was under the impression that the central bank’s chief worry was housing prices and therefore higher borrowing costs.
But when policy-makers studied the data, their models foretold a dark future from the collapse of oil prices. Their models were true: the economy contracted in the first half of 2015, as commodity wealth evaporated and business investment retreated. (The Bank of Canada would cut its policy rate a second time in July, dropping the overnight target to its current 0.5%.) At the time, many observers were skeptical of the January decision. In fact, I wrote an article about how the central bank risked making things worse by scaring people. But it’s difficult to argue now that Canada’s interest-rate cuts were a mistake. “[Poloz] took a little bit of heat for cutting rates, and it turned out he saw something troublesome in the numbers,” Bank of Nova Scotia chief executive Brian Porter told me in October. “He made the right call.”
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