It is no mystery that the Bank of Canada governor will keep the key interest rate moored at one per cent on Wednesday, but some fancy footwork is required to account for how the central bank's policy team could have been so off about the economy in the past year.
Given the enormous uncertainty in the world, economic forecasters should be prepared to eat some humble pie, says Derek Holt, vice-president of economics with Scotia Capital.
But the Bank of Canada's forecasts require a double helping.
"I'm of the view that the bank has fairly persistently been too optimistic on growth over its forecast horizon, and not just recently," he said.
The puts the bank in the position of "having to play the downward revision game for the next year or two."
In July, the bank missed the sharp slowdown in the third quarter as it was occurring, predicting a solid two per cent expansion despite the undershoot in the first half of the year. The October analysis wasn't much better, sticking with the growth story — this time 2.5 per cent for the fourth quarter of 2012 — when now it looks 1.5 would have been a stretch.
The bank's governing council has also underestimated the downward slide of inflation.
On Wednesday, when it releases its winter monetary policy report, the bank will almost certainly "play the downward revision" game, to use Holt's characterization, not only looking backwards, but likely on its 2.3-per-cent expectation for 2013.
Earlier this month, senior deputy governor Tiff Macklem acknowledged publicly that the economy hasn't been as strong as the bank anticipated.
Still, on the policy front, many expected Carney to stick to his guns, both in resisting further cuts to interest rates to stimulate the economy, and even in maintaining guidance to markets that the next move, whenever it comes, will bring higher rates.
TD Bank chief economist Craig Alexander says there is justification for dropping that tightening bias, but with Canadians over their heads in debt, Carney is unlikely to signal any weakening of resolve.
"Financial markets have been debating whether the bank could drop the forward looking language... but I still think they'll leave it in place and the main reason is the bank is still concerned about imbalances in the Canadian economy from consumer debt," he explained.
Despite the slowdown that has already occurred, Carney could still stay upbeat about the future in anticipation that both the U.S. and China, the world's two largest economies, appear to be gathering steam, said Doug Porter of BMO Capital Markets.
"I think they'll recognize the softness we've seen, but I think they'll be more upbeat about what lies ahead."
Still, Porter notes that the bank will need to make a major revision to come near his own projection of weak 1.7 per cent growth through 2013.
Also of interest Wednesday is that the bank is putting into practice a new format for the interest rate decision and monetary report. In the past, the releases were issued separately over two days, but they are now being telescoped into one announcement. This will push back the announcement on interest rates one hour to 10 a.m. ET.
Observers also expect Carney to face a different mood when he meets journalists later in the morning.
Wednesday is the first opportunity media will have had to question the governor on recent revelations he had been courted by Liberals to take a run at the leadership contest, and had vacationed at Liberal finance critic Scott Brison's cottage during the summer.
The latter raised questions about whether Carney had breached conflict of interest guidelines in accepting a gift, but the bank ruled the stay was of a personal nature and not part of his duties as governor.