The Federal Reserve's declaration on Tuesday that it would likely keep rates near zero for two years parallels a commitment made by the Bank of Canada in the depth of the recent Great Recession.
The Canadian central bank pledged on April 21, 2009, that it would keep its overnight rate at the rock-bottom 0.25% through the end of the second quarter of 2010, as long as inflationary pressures stayed under control.
"It (the Fed) took a page out of the Bank of Canada's playbook," CIBC World Markets chief economist Avery Shenfeld said on Tuesday.
Within a week of the Bank of Canada's move, Governor Mark Carney was able to state it had caused interest rates to fall, and not just at the short end of the spectrum.
"We did see an important move in interest rates farther out the yield curve as a result of that commitment, which should provide considerable additional stimulus to the economy," Carney said at the time.
Although the Bank of Canada did not guarantee rates would stay unchanged, its move enabled creditors to lend for longer periods of time, secure in the knowledge that only an extraordinary event would move the overnight rate higher before mid-2010.
"As I understand it, even at the time I think the Fed took great interest in the bank's conditional commitment," BMO Capital Markets deputy chief economist Doug Porter said.
Despite the similarities in the two approaches, Porter noted subtle differences.
"One is that they (the Fed) didn't make the commitment conditional on anything, but at the same time they didn't exactly make it a commitment either," he said.
"They said it was likely they would ... keep rates at exceptionally low levels," he said, adding however: "It was for an even longer period of time than the Bank of Canada initially committed to."
Porter said it was in fact a matter of debate how successful the Bank of Canada's move had been.
"I know initially the bank thought it was a great success ... but I think the evidence is somewhat mixed on that front," he said.
"It likely did have some influence in keeping short-term rates a bit lower than they might have otherwise been, but of course there were so many factors going on during that period that I think it's tough to draw any definitive conclusions."
In the end, the Bank of Canada actually moved one month earlier than planned, raising its overnight rate by 0.25 of a percentage point on June 1, 2010, in response to two quarters of extraordinarily strong growth. But the markets had by then widely expected the move.
