The Fed has also communicated its intention to begin slowly shrinking its balance sheet – which was expanded significantly during the global financial crisis – this year. The ECB4 and the Bank of England have also recently signalled a possible end to their extremely accommodative monetary policy stances later this year, but rates are expected to remain low in Japan.
The Bank of Canada looks at risks through two lenses: (i) the possible impact on the outlook for real economic activity and inflation, and (ii) the possible impact on the stability of the financial system. These two sets of risks are related but, for the moment, let me discuss them separately. Targeting inflation is necessarily a forward-looking activity.