The author is the President of the Bank of Canada

Even while the global economy is recovering, the epidemic continues to challenge people, businesses, and governments.For the central bank, formulating and communicating monetary policy now requires More delicate balanceIn Canada, like many other countries, we still need a lot of monetary stimulus to fully recover, but due to changes in demand caused by the pandemic, supply disruptions, and rising energy prices, rising prices of many commodities have increased the risk of inflation.

Despite the unprecedented nature of this crisis, we are still guided by our framework, which focuses on Nominal inflation anchor. But in implementing our policy, three lessons have become clear.

One is to enter the arena boldly and plan to exit. Although it takes courage to adopt special policies, ending them is at least as difficult. In the face of a sudden and severe crisis, the top priority is to overwhelm it and strengthen confidence.

But to do this, we need to develop a plan to withdraw from emergency response when the time is right.like Many central banksAt the beginning of the crisis, we launched an unprecedented liquidity and stimulus plan, first to restore market operations, and then to support recovery. Despite the huge uncertainty, we did our best from the beginning to determine the conditions for withdrawal.

For our asset purchase plan aimed at restoring market operations, once the market normalizes, this definition will help with a smooth exit. For our quantitative easing purchases, the extensive exit conditions laid the foundation for the gradual reduction that we started in April and turned to reinvestment in November. For the policy rate, Our forward-looking guidance It has been made clear that we will not raise interest rates until we absorb economic weakness. We are not there yet, but we are getting closer.

The second lesson we learned is that when facing a unique crisis, it is better to focus on results rather than timelines. When we started quantitative easing, we said it would stay in place until the recovery went smoothly, even if we didn’t know when that would be. Now our economy has basically reopened, and overall employment has returned to the pre-crisis level. Grow It is expected to reach around 5% by 2021, and the recovery is clearly making good progress. There is no longer a need for further stimulus through quantitative easing.

As for our forward-looking guidance on policy interest rates, we have been very clear from the beginning that it is based on a result-the need to fully absorb economic weakness in order to sustainably achieve the 2% inflation target. Our forecast is listed on the timetable, but of course the forecast will change as new information changes. With the emergence of these new information, we have already proposed the possible time for absorption twice in advance, but our forward-looking guidance has not changed. By focusing on the results, we have used the power of policy tools while being aware of the extreme uncertainty that prevails in this crisis.

This leads to the third lesson: prepare for the unexpected and stay humble. The world has never experienced such a crisis. We have never closed the economy many times and tried to reopen it. Our model has never considered forced lockouts, physical distances, or wearing masks.

To manage uncertainty, we use novel real-time data sources to supplement traditional economic data. We have been speaking bluntly about our predictions and the confidence belts surrounding them. Although the recovery has progressed faster than expected, each stage of the crisis has brought new surprises, reminding us to remain humble. This humility is reflected in how we build and use quantitative easing and forward-looking guidance.

The focus on results and reliance on a reliable policy framework means that although people can challenge our economic forecasts, they can still have confidence in our resolve Control inflation And support a comprehensive and inclusive recovery.

Let me figure out what this determination means. This does not mean that we have changed the view that recent inflation dynamics are temporary. We still believe that the economy is still weak, so a lot of monetary stimulus is still needed. But supply disruptions seem to last longer than we thought, and rising energy prices are exacerbating the current inflation rate. Although our analysis continues to show that these pressures will be relieved, we have taken them into account in the dynamics of supply and demand.

Our determination means that if we finally make a mistake about the persistence of inflationary pressures and how much economic weakness remains, we will make adjustments. Our framework enables us to do this.