, we try to determine the degree to which those movements are due to changes in world demand for our goods and services, and how much is due to other, unrelated factors. it is important that we understand the causes of exchange rate movements, because the implications for the economy – and the appropriate monetary policy response – depend on the reasons for the change. we must then incorporate this information with our assessments of other data, and set a course for monetary policy that works to keep total demand and supply in balance, and inflation on target. exchange rate movements can also be, as we have seen recently, quite volatile. that has sometimes led to calls, for example, for canada to fix its currency to the u. s. dollar. that would be a mistake. the united states is certainly our closest neighbour and by far, our largest trading partner. but the structures of our two economies are very different. this means that each of us often requires different adjustments and different policies in reaction to shocks. canada's floating exchange rate helps in this process by acting as a shock absorber. we cannot avoid adjustment ; the question is how we can best adjust to changing global and domestic economic forces. with a fixed exchange rate, the adjustments would have to come through movements in overall output and in all wages and prices. history has shown that those adjustments are more protracted and more difficult when the nominal exchange rate is not allowed to move. again, however, i stress that this does not mean that the bank is indifferent to movements in the exchange rate. now, let me conclude with a few summary comments on our latest monetary policy report update released last week. copies are available for committee members. in this, we said the canadian economy continues to operate above its production capacity, despite some slowing in growth in the fourth quarter of 2007. the bank projects that economic growth in 2008 will be weaker than was expected in october, averaging a little over 1 per cent in the first half of this year and a little over 2 per cent in the second half. on an average annual basis, the economy is projected to expand by 1. 8 per cent in 2008 and 2. 8 per cent in 2009. both core and total cpi inflation are projected to fall below 1 1 / 2 per cent by the middle of this year before returning to 2 per cent by the end of 2009. on 4 december and on 22 january, the bank lowered its target for the overnight rate by one - quarter of one percentage point, bringing it to

that its supervision and examination policies do not inadvertently impede sound lending to businesses, both large and small, and we will continue to do so. actions taken to stabilize the largest banks during the crisis have received a lot of attention. however, i think it is equally important to note the degree to which banks of all sizes were offered access to the same loan, guarantee, and capital facilities. we should never forget that the objective was to save the system as a whole, not just a handful of large institutions. as attention turns from saving the financial system to strengthening it, any proposed solution must address the assignment of responsibility for regulation and supervision. during the financial crisis, i saw firsthand how important it was that the fed have a complete view of the financial landscape and how successful was the interaction among the fed ’ s divisions in crafting solutions to the many different problems we confronted. as of the end of 2009, the federal reserve supervised 4, 974 top - tier bank holding companies, 844 state member banks and 177 foreign banking organizations operating in the united states. state member banks range from very small community banks to banks with assets of more than $ 100 billion. bank holding companies vary similarly in size and now include a number of companies with more of their financial business outside of bank subsidiaries than inside them. i believe that having a window into such varied parts of our financial system is important and that it would be a mistake to focus fed supervision on only the largest companies. our strengths as a supervisor include our experience in supervision, knowledge of the markets, and understanding of the economy. and our role in supervision strengthens our performance in other roles. lending issues have been central to our discussions of monetary policy, at least in my time with the fed. if you look at the maximum amount reached by each of our lending facilities, we loaned almost $ 2 trillion in a very short time as we worked to stabilize financial markets. those loans are now paid down to less than $ 100 billion. we never could have done that as quickly, as smoothly, or with zero loss without an extensive knowledge of the industry and institutions as well as staff across the country with banking expertise. conclusion in summary, the recent financial crisis has underscored the importance of community banking, especially the role you play in providing credit to the local businesses in your community. even though the environment is challenging and some community banks face significant stress, most community banks are fundamentally sound and will remain so. it is encouraging to see in your