Fiscal consolidation has begun, with the combined deficits of all levels of government falling from 4.8 per cent in 2009 to an expected 2.8 per cent this year.9 Disciplined by its inflation target and reflecting the relative strength of the economy, the Bank of Canada was the only G-7 central bank not to engage in quantitative easing, and we have been the only one to move away from emergency settings of interest rates.
While scal policy is crucial to ease the effects of the crisis, monetary policy can ensure the cost of borrowing remains low. In understanding the important differences between these two policy spheres, the Chairman Powell of the Federal Reserve captured it well when saying that the “FED has lending powers not spending powers”.