Email reveals a more pessimistic view from Mark Carney

OTTAWA — Bank of Canada Governor Mark Carney may be more pessimistic about the prospects for recovery in the U.S. and Europe than he lets on in public.

OTTAWA — Bank of Canada Governor Mark Carney may be more pessimistic about the prospects for recovery in the U.S. and Europe than he lets on in public.

A glimpse of the central banker’s gloomier view was offered in an email to clients from CIBC chief economist Avery Shenfeld after Carney gave a private assessment at a Toronto event Wednesday night.

The comments were supposed to be off the record, but Shenfeld admitted in a later email that he had been mistaken about the matter and asked clients to ignore his earlier comments.

According to Shenfeld’s note, Carney said the global financial crisis is not over, painting a bleaker picture of the recovery in developed countries.

Even in Canada, which he said was in a solid position, it is too early to celebrate about how well the country emerged from recession, saying a true perspective might not be known until five years down the road.

But the most stark comments were reserved for the United States, which remains in political gridlock over how to deal with high deficits and mounting accumulated debt.

Carney told about 100 people at an event organized by the United Jewish Appeal that he doesn’t see the U.S. dealing with it’s fiscal problems until after 2012, once presidential and Congressional elections have been held.

And he said it will be a long time before there is a meaningful tightening in monetary policy in the U.S.

That could signal that the Bank of Canada will remain on hold regarding Canadian interest rates for longer than expected, as well, but Carney cast doubt on such a construction.

“Carney reminded borrowers that their (bank’s) base case includes rate hikes over the next two years’,” Shenfeld said in his note.

He added that the bank would not necessarily send a direct signal of when it will start hiking rates, but hoped that the thinking of the markets and the bank as to when the timing is appropriate will be similar.

In comments to media after a speech Monday, Carney said the time had come for Washington to put in place a plan to deal with the massive federal deficit.

The U.S. accumulated debt is more than US$14 trillion and many in the U.S. Congress — mainly Republicans — are calling for major cuts to government spending, including Social Security and Medicare. Some politicians are also demanding cuts to defence spending and pushing for selected tax increases.

In his private comments Wednesday, Carney said he was concerned that the bond market wasn’t sending “America the signal that it needs to act due in part to huge central bank holdings of Treasuries,” Shenfeld wrote.

The Bank of Canada tried he hold off publication of Carney’s remarks Thursday morning, but was ultimately unsuccessful.

Spokesman Jeremy Harrison said it’s important that senior officials can candidly speak to Canadians away from the media glare in order to “encourage a frank and open exchange of views.”

“However, it is important to note that any comments by bank officials on these occasions will reflect views that have already been communicated publicly,” he added.

“The event on Wednesday night was one such occasion. Therefore, we will not comment on reports of Governor Carney’s remarks at that event, or his responses to audience questions.”