Actual policy will always respond to the economic and financial outlook as it evolves. Market expectations of policy should do the same, reflecting differences in perspectives amid a common understanding of our objective. Let me offer some specific examples where the provision of additional guidance in normal times on the path of interest rates might be helpful.
Headwinds and the neutral policy rate First, through the spring and summer of 2011, it became clear that some Canadian market participants were making the short-hand assumption that the policy interest rate needed to be at neutral when inflation was on target and the output gap was closed.