Since the November announcement, U.S. financial conditions have improved only slightly, reflecting the conflicting forces of some better U.S. data, heightened risk aversion caused by the European turmoil, possibly revised expectations regarding the ultimate size of the program, and the announcement of a major new fiscal package.
The overall impact of QE2 may be more modest than previous interventions when market dislocations were more severe. 4 The Bank of Canada anticipated the Fed’s latest move when we published our October projection (not hard to do, given the openness with which the Fed discussed its plans). Overall, we expect the net impact on Canadian GDP to be positive but small.