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I propose a novel method to identify and estimate the macroeconomic effects of forward guidance and large-scale asset purchases (LSAP) for each FOMC announcement. I find that LSAP is more important than forward guidance in influencing output and inflation. LSAP puts upward pressure on short-term yields, so it should always be used in conjunction with forward guidance.

The Canadian economy continues to adjust to US tariffs and the new global trade landscape. This adjustment will take time and growth is expected to be modest. Inflation is projected to remain near the 2% target.

Senior Deputy Governor Carolyn Rogers talks about the effects of change and uncertainty on the economy and how the Bank can be an anchor of stability by keeping inflation low and stable.

Inflation in Canada has been below 3% since January and broad inflationary pressures are easing. Economic growth has picked up, led by population gains.

This paper provides a non-technical introduction to monetary policy - what it is, how it works, and why it matters. It discusses inflation volatility and why this is damaging to the economy, as well as why increased stability of output growth is desirable.

The war in the Middle East has pushed up oil prices, putting pressure on inflation. In a situation where geopolitical tensions trigger a severe tightening in financial conditions, the resilience of the financial system could be tested.

The spread between long-term and short-term interest rates has proven to be an excellent predictor of changes of economic activity in Canada. As a general rule, when long-term interest rates have been much above short-term rates, strong increases in output have followed within about a year; however, whenever the yield curve has been inverted for any extended period of time, a recession has followed. Similar findings exist for other countries, including the United States. But although Canadian and U.S. interest rates generally move quite closely together, the Canadian yield curve has been distinctly better at predicting future Canadian output. The explanation given for this result is that the term spread has reflected both current monetary conditions, which affect short-term interest rates, and expected real returns on investment and expectations of inflation, which are the main determinants of long-term rates. This article is mainly a summary of econometric work done at the Bank. It also touches on some of the extensive recent literature in this area.

This is the second in a series of semi-annual reports designed to increase the transparency and understanding of Canadian monetary policy.

Over time, it has become clear that the best contribution monetary policy can make to the promotion of the economic and financial welfare of Canada is to keep inflation low, stable, and predictable.