the expected rate of inflation, in part to compensate for what had been very narrow yield spreads and readily available credit. we did not know how quickly markets would recover, the extent to which credit terms and standards would be tightened, or precisely how households and businesses would respond to recent or forthcoming financial developments. but, pending further evidence, a 50 basis point easing was not an unreasonable first approximation of what might be required to keep the economy on a sustainable growth path. in addition, i thought that economic performance would be better served by the federal reserve taking its chances on responding too much, or too rapidly, to the turmoil in financial markets rather than acting too little, or too slowly. sluggish or inadequate easing risked a weaker real economy that might cause lenders to pull back even more, leading to a deteriorating situation that could prove difficult to reverse. with the news on inflation relatively favorable of late and with inflation expectations seemingly well anchored, i believed that we would be able to offset the cut in the federal funds rate – if it turned out to be larger than needed – in time to preserve price stability. since the september fomc meeting, we have seen some signs of improvement in some markets that were severely disrupted. for example, investors appear to be differentiating more among risk characteristics of asset - backed commercial paper programs ; term funding has become a little more readily available to banks and commercial paper issuers ; and the run - off in commercial paper outstandings has slowed. but spreads in these markets are still quite high by historical standards and funding maturities are very short, leaving many markets vulnerable to unpleasant surprises. in mortgage markets, spreads for rates on jumbo prime mortgage loans over those on conforming, agency eligible, loans have come down a bit, but are still elevated. indeed, it may be a while before market participants regain enough confidence to price and trade certain types of assets and more normal liquidity conditions are restored. our policy action will not be able to avert all of the weakness in the economy that may be in train for the next several months. monetary policy works with a lag, and the effects of our easing action will have their maximum effect only after several quarters. in particular, housing markets are likely to remain depressed in coming months as housing demand is restrained by the difficulty in obtaining mortgages and perhaps also by spreading expectations on the part of buyers that house prices will fall, as they already have in a number of markets. and, although builders have reduced housing starts

by more than the bank had expected, with more muted price pressures across a wide range of goods and services, consistent with the unexpected increase in excess capacity. bis central bankers ’ speeches • total cpi inflation has also been lower than anticipated, reflecting developments in core inflation and weaker - than - projected gasoline prices. • total cpi inflation is expected to remain around 1 per cent in the near term. it is expected to rise gradually, along with core inflation, to the 2 per cent target in the second half of 2014 as the economy returns to full capacity and inflation expectations remain well - anchored. • despite the reduction in global tail risks as a result of a series of actions by european and american authorities, the inflation outlook in canada is still subject to significant risks. • the three main upside risks to inflation in canada relate to the possibility of stronger - than - expected growth in the u. s. economy, higher canadian exports and renewed momentum in canadian residential investment. • the three main downside risks to inflation in canada relate to the european crisis, more protracted weakness in business investment and exports in canada, and the possibility that growth in canadian household spending could be weaker. • overall, the bank judges that the risks to the inflation outlook in canada are roughly balanced over the projection period. • reflecting all of these factors, the bank, on 23 january, maintained the target for the overnight rate at 1 per cent. • while some modest withdrawal of monetary policy stimulus will likely be required over time, consistent with achieving the 2 per cent inflation target, the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggest that the timing of any such withdrawal is less imminent than previously anticipated. with that, tiff and i would be pleased to take your questions. bis central bankers ’ speeches