July 2000 Monetary Policy Report

The report now describes stronger U.S. growth and firmer private credit conditions, with higher real rates driving most of the interest-rate increase. It also highlights a wider current account deficit, a weaker euro, and new concerns about global market volatility, while noting only modest core inflation despite higher oil prices.

Inflation

• The report now notes that higher oil prices raised broad inflation measures almost everywhere, but core inflation edged up only modestly, a shift from the previous report's focus on lower average foreign inflation. Read the section
  Quotes

  Previous report: “Despite stronger activity and higher prices for oil and other commodities, average foreign inflation was lower in 1999 than in 1998, as output remained below potential in most countries.”

  This report: “Higher oil prices bumped up broad measures of inflation almost everywhere, but measures of core inflation edged up only modestly, if at all.”

Economic activity

• The report now describes the expansion as maintaining momentum into early 2000, with real GDP growth of 5-1/2 percent in Q1, whereas the previous report noted 4 percent growth in 1999. Read the section
  Quotes

  Previous report: “The U.S. economy retained considerable strength in 1999. According to the Commerce Department's advance estimate, the rise in real gross domestic product over the four quarters of the year exceeded 4 percent for the fourth consecutive year.”

  This report: “The expansion of U.S. economic activity maintained considerable momentum through the early months of 2000 despite the firming in credit markets that has occurred over the past year.”  ·  “Real GDP increased at an annual rate of 5-1/2 percent in the first quarter of 2000.”

Financial conditions

• The report now describes private credit market conditions as firmed since end of 1999, with higher borrowing rates and tighter bank terms, whereas the previous report noted unsettled markets at the start of 1999. Read the section
  Quotes

  Previous report: “Financial markets were somewhat unsettled as 1999 began, with the disruptions of the previous autumn still unwinding and the devaluation of the Brazilian real causing some jitters around mid-January.”

  This report: “Conditions in markets for private credit firmed on balance since the end of 1999.”  ·  “private borrowing rates are higher, on net, particularly those charged to riskier borrowers. In addition, banks have tightened terms and standards on most types of loans.”

• The report now attributes most of the increase in interest rates to higher real rates, especially short-term, whereas the previous report attributed rate rises to anticipated policy tightening. Read the section
  Quotes

  Previous report: “In this environment, market participants began to anticipate that the Federal Reserve would reverse the policy easings of the preceding fall, and interest rates rose.”

  This report: “Higher real interest rates--as measured based on inflation expectations derived from surveys and from yields on the Treasury's inflation-indexed securities--account for the bulk of the increase in interest rates this year, with short-term real rates having increased the most.”

• The report now reports that major equity indexes have posted small gains so far this year, whereas the previous report noted the Dow down nearly 10 percent and the Nasdaq up 8 percent. Read the section
  Quotes

  Previous report: “So far in 2000, stock prices have been volatile and mixed; major indexes currently span a range from the Dow's nearly 10 percent drop to the Nasdaq's 8 percent advance.”

  This report: “Major equity indexes have posted small gains so far this year amid considerable volatility.”

Financial stability

• The report now highlights episodes of increased volatility in global financial markets starting in mid-March, often triggered by U.S. Nasdaq price declines, a new concern not mentioned before. Read the section
  Quotes

  This report: “Starting in mid-March, however, global financial markets were jolted by several episodes of increased volatility set off typically by sudden downdrafts in U.S. Nasdaq prices.”

International

• The report now notes the current account deficit widened to $409 billion in Q1 2000, up from $372 billion in late 1999, whereas the previous report noted it was $320 billion in 1999. Read the section
  Quotes

  Previous report: “For the first three quarters of the year, the current account deficit increased more than one-third, reaching $320 billion at an annual rate, or 3-1/2 percent of GDP. In 1998, the current account deficit was 2-1/2 percent of GDP.”

  This report: “The current account deficit reached an annual rate of $409 billion in the first quarter of 2000, or 4-1/4 percent of GDP, compared with $372 billion and 4 percent in the second half of 1999.”

• The report now notes the euro depreciated against the dollar, down about 7 percent for the year, whereas the previous report said the dollar appreciated 16 percent relative to the euro over 1999. Read the section
  Quotes

  Previous report: “On balance, the dollar appreciated 16 percent relative to the euro over 1999.”

  This report: “Despite a modest recovery in recent weeks, the euro still is down against the dollar almost 7 percent on balance for the year so far and about 3-3/4 percent on a trade-weighted basis.”

• The report now says the dollar strengthened during most of the first half, supported by positive U.S. news and higher short-term rates, whereas the previous report noted the dollar ended 1999 little changed. Read the section
  Quotes

  Previous report: “The dollar's average foreign exchange value, measured on a trade-weighted basis against the currencies of a broad group of important U.S. trading partners, ended 1999 little changed from its level at the beginning of the year.”

  This report: “It appeared to be supported mainly by continuing positive news on the performance of the U.S. economy, higher U.S. short-term interest rates, and for much of the first half, expectations of further tightening of monetary policy.”

Monetary policy

• The report now describes the FOMC's March 2000 decision to broaden collateral in repurchase transactions and its study of alternative assets for the SOMA, topics absent from the previous report. Read the section
  Quotes

  This report: “the FOMC decided at its March 2000 meeting to facilitate until its first meeting in 2001 the Trading Desk's ability to continue to accept a broader range of collateral in its repurchase transactions.”  ·  “the Committee also initiated a study to consider alternative asset classes and selection criteria that could be appropriate for the System Open Market Account (SOMA) should the size of the Treasury securities market continue to decline.”

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