us away from our 2 per cent target - whether above or below. when strong demand pushes the economy against the limits of its capacity and threatens to raise future inflation above the target, the bank will raise interest rates to cool off the economy and mitigate those inflation pressures. when demand is weak, as we saw in 2001, future inflation is likely to ease. so the bank will lower interest rates to stimulate the economy, and absorb economic slack, consistent with keeping inflation on target. the significant easing of monetary policy during 2001 was a key factor behind the strong growth of household demand in the first half of this year. let me now turn to the outlook. in our april monetary policy report, we said that the recovery in the canadian economy began sooner, and was considerably stronger, than anticipated. consumer spending and residential construction were reflecting the stimulus from both monetary and fiscal policy. canada ’ s export volumes had begun to grow once again, as the u. s. economy began to recover. by the time of our monetary policy report update in july, we were also seeing a rebuilding of inventories and an increase in spending on machinery and equipment. these were suggesting a broadening of the recovery across economic sectors. the july update still reflects our view of the economy. as we said two weeks ago, domestic demand in canada remains stronger than expected, bolstered by the substantial amount of monetary stimulus still in the economy. canada ’ s record of job creation has been nothing short of remarkable, with almost 400, 000 new jobs since the beginning of the year. this strong job growth is reinforcing the confidence of canadian consumers. in addition, medium and small businesses continue to invest. all this paves the way for higher output and ongoing strong domestic demand. but at the same time, there are downside risks and uncertainties, mostly originating from outside canada. near - term prospects for growth in the united states and the major overseas economies appear to have weakened. private and public sector economists have revised down their near - term growth forecasts for the united states, europe, and japan. this could imply that canada ’ s exports, which were already slightly weaker than anticipated in the second quarter, could continue to be affected by slower growth in global demand. the geopolitical situation remains quite unsettled. finally, in the united states and canada, we are still working through the corporate governance issues that have contributed to this year ’ s financial market volatility. history has taught us that during periods

formulate appropriate policy responses to the crisis unless we acknowledge and address the large numbers of foreclosures that are not avoidable. we are likely only beginning to see the serious costs of the foreclosures that have already been initiated, both because of the often - substantial amount of time required to complete a foreclosure and because the costs likely compound as the number of foreclosures grows larger. moreover, even under optimistic assumptions for the number of loan modifications and other forms of private and public assistance that may be realized, the pace at which foreclosures are initiated is likely to remain extremely elevated for some time. just as public focus, experimentation, and policy debate have informed best practices with regard to loan modifications, we must also begin the work of developing responsible protocols for the management of foreclosures and real estate inventory. minimizing the amount of time that properties remain vacant and maximizing the price at which they are sold will serve the the available evidence, though not conclusive, suggests that the homeowner's equity position is, along with affordability, an important determinant of default rates, for owner - occupiers as well as investors. see shane sherlund ( 2008 ), " the past, present, and future of subprime mortgages, " finance and economics discussion series 2008 - 63 ( washington : board of governors of the federal reserve system, november ) ; kristopher gerardi, christopher l. foote, and paul s. willen ( 2008 ), " negative equity and foreclosure : theory and evidence, " public policy discussion papers 08 - 3 ( boston : federal reserve bank of boston, june ) ; and andrew haughwout, richard peach, and joseph tracy ( forthcoming ), " juvenile delinquent mortgages : bad credit or bad economy? " journal of urban economics. see board of governors of the federal reserve system ( 2009 ), " board announces policy to help avoid preventable foreclosures on certain residential mortgage assets held, owned, or controlled by a federal reserve bank, " press release, january 30 ; and board of governors ( 2009 ), " homeownership preservation policy for residential mortgage assets, " board policy, january 30. interests of both lenders and the communities. during the time properties do remain vacant, servicers have a responsibility to follow local codes and ensure that the properties are secured and maintained. at this moment,