“It is important that markets understand how a central bank formulates policy, but that does not equate to perfect foresight,” Mr. Carney said in an August, 2009, speech at the annual gathering of international central bankers and monetary policy experts in Jackson Hole, Wyo.
According to a popular – and credible – theory, too much transparency from the U.S. Federal Reserve Board under former chairman Alan Greenspan contributed to the financial crisis, by causing investors to become less skeptical about economic fundamentals, such as whether U.S. home prices could really keep on rising without an ugly, disorderly crash.
Some executives, while frustrated by the added uncertainty, acknowledged that it is a reflection of the climate in which Mr. Carney is operating.
In Hackett’s Cove, N.S., Nautel Inc. president Peter Conlon said the U.S. radio broadcasters who buy his transmitters are winning advertisers back after the recession, but remain nervous.
“People are waiting for the other shoe to drop,” Mr. Conlon said. “It’s not surprising it looks crazy out there [to Mr. Carney], because it is.”
Bank of Canada statement
What it said: The global economic recovery is proceeding but remains uneven, balancing strong activity in emerging-market economies with weak growth in some advanced economies.
What it signals: Uncertainty rules, particularly in the United States, where the recovery is faltering, meaning more headwinds for Canadian exporters.
What it said: Consumption growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields.
What it signals: Consumer and business spending are shaping up to be strong points in Canada, meaning the private sector and privately driven demand are filling the void being left by the fading impact of government stimulus spending.
What it said: As a result of monetary policy measures taken since April, financial conditions in Canada have tightened modestly but remain exceptionally stimulative.
What it signals: Three rate hikes of 25 basis points each have made it more expensive for Canadians to finance variable-rate mortgages, floating-rate loans and lines of credit. But the current 1-per-cent benchmark rate is far from what economists consider “neutral.’’
What it said: Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.
What it signals: A small tweak on the face of it, but the all-important last line of the statement sounds an arguably more worried tone than in past statements because the two previous versions referred to “considerable” uncertainty. This suggests the bank’s stance has shifted somewhat to one where it would need to see a sufficient amount of positive economic data before hiking again.
