February 2001 Monetary Policy Report

The report now describes a marked easing in financial conditions, with lower long-term yields and falling equity prices, and highlights growing concerns about credit risk. It also notes a slowdown in economic activity and investment, while core inflation remained low despite rising labor costs. International developments show weaker foreign demand and a stronger dollar.

Inflation

• The report now states that core inflation remained low in 2000, whereas the previous report noted that core consumer price inflation was somewhat higher than in 1999. Read the section
  Quotes

  Previous report: “Apart from energy, consumer price inflation so far this year has been somewhat higher than during 1999, and some of that acceleration may be attributable to the indirect effects of higher energy costs on the prices of core goods and services.”

  This report: “Core inflation remained low in 2000 in the face of sharp increases in energy prices.”

• The report now says the ECI rose nearly 4.5 percent in 2000, whereas the previous report noted a first-quarter rise to more than 4.5 percent above a year earlier. Read the section
  Quotes

  Previous report: “Hourly compensation, as measured by the employment cost index (ECI) for private nonfarm businesses, increased sharply during the first quarter to a level more than 4-1/2 percent above a year earlier.”

  This report: “The employment cost index for private industry (ECI) ... rose nearly 4-1/2 percent during 2000 after having increased about 3-1/2 percent in 1999.”

• The report now says unit labor costs increased about 2.25 percent in 2000, whereas the previous report noted that productivity gains held unit labor costs unchanged for nonfinancial corporations. Read the section
  Quotes

  Previous report: “the 4 percent year-over-year increase in productivity held unit labor costs unchanged.”

  This report: “Unit labor costs ... increased about 2-1/4 percent in the nonfarm business sector in 2000 after having risen slightly more than 1/2 percent in 1999.”

Labor market

• The report now highlights a sharp deterioration in consumer confidence due to layoff concerns, while still noting exceptionally tight labor markets, a shift from the previous report's focus on increasing tightness. Read the section
  Quotes

  Previous report: “labor markets remained tight at the time of the FOMC meeting in June”  ·  “economic conditions in the United States were pointing toward an increasingly taut labor market as a consequence of a persistent imbalance between the growth rates of aggregate demand and potential aggregate supply.”

  This report: “Rising concern about slower growth and worker layoffs contributed to a sharp deterioration of consumer confidence.”  ·  “labor markets remained exceptionally tight”

Economic activity

• The report now describes real business fixed investment as rising 10 percent in 2000, whereas the previous report noted a surge of almost 24 percent in the first quarter of 2000. Read the section
  Quotes

  Previous report: “Real business fixed investment surged at an annual rate of almost 24 percent in the first quarter of the year, rebounding sharply from its lull at the end of 1999, when firms apparently postponed some projects because of the century date change.”

  This report: “Real business fixed investment rose 10 percent in 2000 according to the advance estimate from the Commerce Department.”

Financial conditions

• The report now notes a significant decline in long-term corporate bond yields since November, contrasting with the previous report's emphasis on rising market interest rates and higher private borrowing rates. Read the section
  Quotes

  Previous report: “market interest rates were rising, especially after the century date change passed without incident.”  ·  “the substantial rise in private borrowing rates between March and May had been influenced by the buildup in expectations of more policy tightening”

  This report: “Since the November FOMC meeting, yields on many long-term corporate bonds have dropped on the order of a full percentage point, with the largest declines taking place on riskier bonds as the yield spreads on those securities narrowed considerably from their elevated levels.”  ·  “Interest rates on investment-grade corporate bonds have recently fallen to their lowest levels in about 1-1/2 years.”

• The report now describes a sharp fall in long-term interest rates and a decline in stock prices, whereas the previous report noted higher rates and small equity gains. Read the section
  Quotes

  Previous report: “Conditions in markets for private credit firmed on balance since the end of 1999.”  ·  “Major equity indexes have posted small gains so far this year amid considerable volatility.”

  This report: “most longer-term interest rates fell sharply over the last several months of 2000 and into 2001”  ·  “the broadest stock indexes fell more than 10 percent last year”

• The report now emphasizes investor concerns about credit risk and wider yield spreads on lower-rated bonds, a shift from the previous focus on higher borrowing rates. Read the section
  Quotes

  Previous report: “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.”

  This report: “investors became more concerned about credit risk and demanded larger yield spreads to hold lower-rated corporate bonds”

International

• The report now describes foreign economic activity decelerating and weakening demand for U.S. exports, whereas the previous report noted a stronger dollar and expected rising exports to boost demand. Read the section
  Quotes

  Previous report: “The favorable outlook for the U.S. economy has contributed to a further strengthening of the dollar, despite tighter monetary policy and rising interest rates in most other industrial countries.”  ·  “Some of the slowing will be absorbed in smaller increases in imports of goods and services, and given continued recovery in economic activity abroad, domestic firms are expected to continue seeing a boost to demand and to production from rising exports.”

  This report: “Foreign economic activity decelerated noticeably in the latter part of the year, contributing to a weakening of the demand for U.S. exports, which also was being restrained by an earlier appreciation in the exchange value of the U.S. dollar.”  ·  “growth in foreign economies seemed to be slowing, on balance, and U.S. export performance began to deteriorate”

• The report now states the dollar's average value rose over 7 percent for the year, whereas the previous report noted a strengthening during the first half without a full-year figure. Read the section
  Quotes

  Previous 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.”

  This report: “the dollar's average foreign exchange value against the currencies of other major foreign industrial countries recorded a net increase of over 7 percent for the year as a whole.”

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