February 2003 Monetary Policy Report

The report now describes renewed labor market weakness and new oil supply concerns from Venezuela. It also highlights a greater household net worth reversalcars and a higher saving rate, while noting narrower credit spreads and a more definitive fiscal deficit. These changes reflect a less favorable economic backdrop than previously assessed.

Inflation

• The report now attributes the deceleration in core inflation to slack, productivity, and lower expectations, whereas the previous report emphasized subdued core inflation held down by slack and productivity. Read the section
  Quotes

  Previous report: “Core inflation--which excludes the direct influences of the food and energy sectors--remained subdued through May, held down by slack in resource utilization and continued sizable advances in labor productivity.”

  This report: “this deceleration most likely resulted from continued slack in labor and product markets, robust gains in productivity, and somewhat lower expectations of future inflation.”  ·  “The increase in PCE prices excluding food and energy, which was just 1-3/4 percent, was about 1/4 percentage point less than in 2001.”

Labor market

• The report now describes labor markets as weakening again in the fall after stabilizing in the spring, whereas the previous report saw stabilization without a sustained pickup. Read the section
  Quotes

  Previous report: “The pace of economic activity picked up considerably in the first half of 2002 after being about unchanged, on balance, in the second half of 2001.”

  This report: “Employment at private businesses declined again, and the unemployment rate rose to 6 percent in December.”  ·  “employment leveled off on average in December and Janaury, and readings on industrial production have had a somewhat firmer tone of late.”

Financial conditions

• The report now says the household net worth-to-income ratio had reversed nearly all its run-up since the mid-1990s, whereas the previous report noted a reversal of about two-thirds of the late-1990s run-up. Read the section
  Quotes

  Previous report: “According to the flow of funds accounts, by the end of the first quarter, the ratio of household net worth to disposable income had reversed close to two-thirds of its run-up in the second half of the 1990s; this ratio has undoubtedly registered additional declines since the end of March.”

  This report: “the ratio of household net worth to disposable income had reversed nearly all of its run-up since the mid-1990s.”

• The report now notes that risk spreads narrowed considerably on corporate bonds, whereas the previous report emphasized that spreads remained high and had risen for telecom firms. Read the section
  Quotes

  Previous report: “The default rate on outstanding corporate bonds has remained quite elevated by historical standards.”

  This report: “Over the remainder of the year and during early 2003, risk spreads narrowed considerably on investment-grade corporate bonds—especially for the lowest rated of these issues—and even more on speculative-grade bonds, although they remained high by historical standards.”

• The report now says the personal saving rate moved above 4 percent by late last year, whereas the previous report noted a rate of 3 percent in May. Read the section
  Quotes

  Previous report: “In May, the saving rate stood at 3 percent of disposable income, up from an average of 1-1/2 percent over 2001.”

  This report: “The personal saving rate, which has trended notably lower since the early 1980s, moved above 4 percent by late last year after having averaged 2-1/4 percent in 2001.”

• The report now states the federal budget turned from surplus to deficit in fiscal 2002, whereas the previous report noted the budget moved into deficit in fiscal 2002. Read the section
  Quotes

  Previous report: “The federal unified budget moved into deficit in fiscal 2002 after having posted a substantial surplus in fiscal 2001.”

  This report: “After running a unified budget surplus of $127 billion in fiscal 2001, the federal government posted a deficit of $158 billion in fiscal 2002”

International

• The report now mentions civil strife in Venezuela curtailing oil production and pushing prices higher, a factor not noted in the previous report. Read the section
  Quotes

  This report: “However, the ongoing situation in Iraq, civil strife in Venezuela that has curtailed oil production, and tensions on the Korean peninsula have sustained investors' uncertainty about economic prospects and have pushed prices higher on world oil markets.”

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