in situations where the world changes for which different tactics are required. if we have learnt anything from the past four years, it is to expect surprises. we therefore need to retain optionality. the only hard promise we can make is that we will do what is needed to deliver on our mandate ; we cannot pre - commit to a specific policy path. i therefore hope, when i say'higher for longer ', that i'm heard correctly. it is not a sarb promise. it is not even our preferred outcome. instead, it is a useful way of describing the stresses in this economy – some of them from outside and some of them from within. it also conveys a viable strategy for controlling inflation despite those stresses. but higher for longer is not inevitable. we have to control inflation, but if we have different macro arrangements, that could be done more cheaply. lower for longer is also possible, and i hope we get there. thank you. 7 / 7 bis - central bankers'speeches

you in may 2000, our economy was growing vigorously, bolstered by strong domestic and u. s. demand. indeed, with signs of emerging capacity pressures, and with the need to sustain non - inflationary economic growth in canada, the bank raised interest rates the day after our appearance before this committee. these higher interest rates led to some cooling off in domestic demand in canada. what we, and most other analysts, did not anticipate was the abrupt slowing in u. s. economic growth. this is the factor that has contributed to a greater - than - expected moderation in economic activity in canada. since february, the bank has been saying that we expect growth in the first half of this year to be very modest. and we have indicated that, by the middle of 2001, the canadian economy will probably be operating somewhat below potential. overall, the information received to date is broadly in line with the bank's expectations. the monthly numbers have been volatile : some have been weaker and some have been stronger than anticipated. but they are generally consistent with our view that the weakness in the first half will be mainly associated with inventory adjustments in markets facing soft demand — in particular, motor vehicles — and with adjustments in other industries — notably electronics and telecommunications equipment. the bank continues to believe that, after very modest growth in the first half of 2001, economic activity in canada will pick up in the second half and strengthen further in 2002. let me explain what we are basing this on. despite lower production in the three high - profile sectors i just mentioned, aggregate economic activity continues to grow, buttressed by underlying strength in other areas, including the energy sector, retail sales, housing, non - residential construction, and most service industries. supported by recent tax cuts that boost disposable income, final domestic demand should continue to expand. and we expect a recovery in foreign demand in the latter part of the year, encouraged by the substantial reductions in u. s. interest rates. nonetheless, there are uncertainties about the exact timing and strength of the pickup in u. s. growth. here in canada, we have lowered interest rates significantly to support growth in total demand in line with our objective of keeping inflation close to 2 per cent over the medium term. since january, the bank of canada has cut rates by a total of 100 basis points, bringing the overnight rate — the rate that corresponds to the u. s. federal funds rate — down to 4¾ per cent