July 1998 Monetary Policy Report

The report now describes subdued inflation and a tight labor market, but sees greater inflation risks ahead. It notes the Asian crisis has measurably restrained activity and trade, and reports lower long-term yields and faster money growth.

Inflation

• The report now says inflation remained subdued in the first half of 1998, with consumer prices rising less rapidly than in 1997, whereas the previous report noted inflation slowed further in 1997. Read the section
  Quotes

  Previous report: “inflation slowed further”  ·  “Growth was considerably stronger and inflation considerably lower than Federal Reserve officials and most private analysts had anticipated.”

  This report: “Consumer prices actually rose a bit less rapidly in the first half of 1998 than they did in 1997”  ·  “the outlook for inflation has taken on a greater degree of risk. Consumer prices actually rose a bit less rapidly in the first half of 1998 than they did in 1997, but transitory factors--the drop in oil prices, the runup in the dollar, and weak economic activity in Asia--exerted considerable downward pressure on domestic prices. These factors will not persist indefinitely.”

• The report now describes inflation risks as greater and expects inflation to run somewhat higher in the second half, whereas the previous report expected inflation to change little in 1998. Read the section
  Quotes

  Previous report: “the Board members and Reserve Bank presidents anticipate that the rate of price inflation will change little this year.”

  This report: “the outlook for inflation has taken on a greater degree of risk. Consumer prices actually rose a bit less rapidly in the first half of 1998 than they did in 1997, but transitory factors--the drop in oil prices, the runup in the dollar, and weak economic activity in Asia--exerted considerable downward pressure on domestic prices. These factors will not persist indefinitely.”  ·  “With labor markets remaining tight and some of the special factors that helped restrain inflation in the first half of 1998 unlikely to be repeated, inflation is anticipated to run somewhat higher in the second half of 1998 and in 1999.”

• The report now highlights a sharp decline in energy prices and lower non-oil import prices as key disinflationary forces, whereas the previous report cited import competition and capacity growth as primary offsets. Read the section
  Quotes

  Previous report: “the inflationary impulse from that source was more than offset by other factors, including rising competition from imports, the price restraint from increased manufacturing capacity, and a sizable gain in labor productivity.”

  This report: “price inflation remained subdued in the first half of the year, held down in part by a sharp decline in energy prices and lower prices for non-oil imports”

• The report now emphasizes a more discernible uptilt in hourly compensation due to tighter labor markets, whereas the previous report noted acceleration but attributed it to a tight market without highlighting a trend shift. Read the section
  Quotes

  Previous report: “Although wages and total hourly compensation accelerated in a tight labor market”

  This report: “The further tightening of labor markets in recent quarters has been reflected in a more discernible uptilt to the trend in hourly compensation.”

Labor market

• The report now notes the unemployment rate averaged a bit less than 4-1/2 percent in the second quarter, its lowest in nearly thirty years, whereas the previous report cited a decline to a quarter-century low. Read the section
  Quotes

  Previous report: “the unemployment rate declined to its lowest level in nearly a quarter-century”

  This report: “the unemployment rate averaged a bit less than 4-1/2 percent, its lowest quarterly reading in nearly thirty years”

Financial conditions

• The report now says long-term Treasury yields were among the lowest in decades, whereas the previous report described declines of 3/4 point and then 1/4 to 1/2 point. Read the section
  Quotes

  Previous report: “longer-term interest rates fell 3/4 percentage point from their peaks in mid-April”  ·  “additional declines of 1/4 to 1/2 percentage point in the yields on intermediate- and long-term Treasury securities in the United States between mid-autumn and the end of the year”

  This report: “nominal yields on long-term Treasury securities were among the lowest in decades”

• M3 growth is now reported at a 9-3/4 percent annual rate for the latest period, up from the 8-3/4 percent growth in the previous report. Read the section
  Quotes

  Previous report: “M3 shot up last year, expanding 8-3/4 percent; this growth was well above the 2 percent to 6 percent annual range”

  This report: “M3 grew 9-3/4 percent at an annual rate between the fourth quarter of last year and June, placing it far above the top of its 2 percent to 6 percent growth range.”

• M2 growth is now reported at a 7-1/4 percent annual rate, up from the 5-1/2 percent rate in the previous report. Read the section
  Quotes

  Previous report: “it increased at a brisk 5-1/2 percent rate last year. As the Committee had anticipated, the aggregate was somewhat above the upper bound of its 1 percent to 5 percent annual range”

  This report: “M2 grew 7-1/4 percent at an annual rate between the fourth quarter of last year and June of this year, placing it well above the top of its 1 percent to 5 percent growth range.”

International

• The report now says the Asian crisis has measurably affected U.S. trade and will restrain activity, whereas the previous report said it had not yet affected aggregate performance. Read the section
  Quotes

  Previous report: “Although developments in Asia over the past few months have not yet affected aggregate U.S. economic performance in a measurable way, these influences will likely become more visible in coming months.”

  This report: “the substantial rise in the foreign exchange value of the dollar has boosted our real imports and--together with the slower growth in Asia--depressed our real exports.”  ·  “The Asian crisis is likely to continue to restrain U.S. economic activity in coming quarters.”

• The report now describes sharp output declines in Korea, Indonesia, and Malaysia, whereas the previous report noted a marked slowdown in Asian economies. Read the section
  Quotes

  Previous report: “The emergence of the financial crisis is causing a marked slowdown in economic activity in these Asian economies.”

  This report: “Output declined precipitously in the first quarter in those countries most affected, such as Korea, Indonesia, and Malaysia”

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