February 1997 Monetary Policy Report

The report now describes a shift toward restraint, with the FOMC's mid-1996 bias noted, and highlights a tighter labor market with lower unemployment and rising wages. It also reports a stronger dollar, tighter credit for some households, and higher consumer loan charge-offs, while projecting faster GDP growth for 1997.

Labor market

• The report now describes the unemployment rate as falling to its lowest level of the expansion, whereas the previous report expected it to remain near its recent average. Read the section
  Quotes

  Previous report: “the members of the Federal Open Market Committee (FOMC) anticipate that economic activity will grow more moderately, on average, in coming quarters and that the unemployment rate will remain around the level it has averaged over the past year and a half.”

  This report: “the unemployment rate edged down to its lowest level of the current expansion.”

• The report now describes a moderate pickup in wage increases in 1996, with the employment cost index rising 3.1 percent, whereas the previous report noted steady compensation growth with hints of acceleration. Read the section
  Quotes

  Previous report: “The employment cost index for private industry--a measure that includes wages and benefits--rose at an annual rate of about 3 percent over both the first three months of 1996 and over the twelve months ending in March.”  ·  “Separate data on average hourly earnings of production or nonsupervisory workers also show a recent acceleration in wages; the twelve-month change in this series moved up to about 3-1/2 percent in June.”

  This report: “Tightness of the labor market led to a moderate pickup in wage increases in 1996.”  ·  “Tightness of the labor market appears to have exerted some upward pressure on the cost of labor in 1996”  ·  “The employment cost index (ECI) for the private nonfarm sector of the economy showed compensation per hour moving up 3.1 percent over the year. The index had risen 2.6 percent in 1995.”

Financial conditions

• The report now notes that some households faced tighter credit card standards, whereas the previous report said credit remained easily available to most households. Read the section
  Quotes

  Previous report: “credit remained easily available to most household and business applicants. Interest rate spreads on private debt over Treasury securities remained narrow.”

  This report: “Some households, by contrast, faced a tightening of standards and terms with respect to credit card debt and some other types of consumer debt last year, as banks reacted to a rising volume of delinquencies and charge-offs on these instruments.”

Financial stability

• The report now notes that charge-off rates on consumer loans rose to around the peak levels of the 1990-91 recession, whereas the previous report only mentioned rising delinquency rates and a surge in bankruptcies. Read the section
  Quotes

  Previous report: “the delinquency rate on credit card receivables at commercial banks has increased significantly in recent quarters, retracing about one-third of the improvement that took place during the first few years of the current economic expansion.”  ·  “The personal bankruptcy rate also surged to a new high this year.”

  This report: “Charge-off rates on consumer loans rose at banks in 1996 to around the peak levels of the last recession in 1990-91.”

International

• The report now cites a 9 percent dollar appreciation against G-10 currencies, up from the previous report's 4 percent appreciation since mid-April. Read the section
  Quotes

  Previous report: “since mid-April, the dollar has generally traded against an average of the currencies of the other major industrial countries about 4 percent above its level at the end of December.”

  This report: “the value of the dollar was up around 9 percent against an average of other G-10 currencies.”

Monetary policy

• The report now notes the FOMC's mid-1996 bias toward greater restraint, whereas the previous report said no policy adjustments were made after January. Read the section
  Quotes

  Previous report: “the Federal Reserve made no adjustments to its policy stance after January.”

  This report: “the Committee's policy directives starting in mid-1996 reflected a perception that the most likely direction of any policy action would be toward greater restraint in the provision of reserves to the banking system.”

Projections

• The report now projects 1997 GDP growth of 2 to 2-1/4 percent, whereas the previous report only anticipated more moderate growth in coming quarters. Read the section
  Quotes

  Previous report: “the members of the Federal Open Market Committee (FOMC) anticipate that economic activity will grow more moderately, on average, in coming quarters and that the unemployment rate will remain around the level it has averaged over the past year and a half.”

  This report: “The central tendency of the GDP growth forecasts put forth by members of the Board of Governors and the Reserve Bank presidents is from 2 percent to 2-1/4 percent, measured as the change in real output between the final quarter of 1996 and the final quarter of 1997.”

These points are generated automatically by comparing the two reports' text, and each quote is checked against the report it's cited from.