July 2003 Monetary Policy Report

The report now describes the economy as growing below capacity with widening slack, and underlying inflation as having declined further. It notes the FOMC eased in June and projects a higher unemployment rate for end-2003. Financial conditions are now described as improved, with low interest rates and a rising stock market.

Inflation

• The report now says underlying inflation has declined further, whereas the previous report said core inflation was held down by slack and productivity. Read the section
  Quotes

  Previous report: “Meanwhile, surging energy prices exerted upward pressure on overall inflation, but still-appreciable slack in resource utilization and a strong upward trend in private-sector productivity were holding down core price inflation.”

  This report: “underlying inflation remained low--and, indeed, seems to have moved down another notch.”

Labor market

• The report now projects a higher unemployment rate for end-2003 (6 to 6-1/4 percent) than the previous report's 5-3/4 to 6 percent. Read the section
  Quotes

  Previous report: “The civilian unemployment rate is expected to end the year in the 5-3/4 percent to 6 percent range.”

  This report: “The civilian unemployment rate is expected to be between 6 percent and 6-1/4 percent in the fourth quarter of 2003”

• The report now reports an unemployment rate of 6.4 percent in June, up from the fourth quarter of 2002, whereas the previous report noted a drop to 5.7 percent in January 2003. Read the section
  Quotes

  Previous report: “the unemployment rate increased a little less than 1/2 percentage point over the year, to 6 percent, before dropping back to 5.7 percent in January 2003.”

  This report: “In June, it stood at 6.4 percent, 1/2 percentage point higher than the average in the fourth quarter of 2002 and about 2-1/2 percentage points above the lows reached in 2000.”

Economic activity

• The report now describes the economy as growing below capacity with widening slack, whereas the previous report noted slow growth but resilient final demand. Read the section
  Quotes

  Previous report: “it had become apparent that the economy had grown only slowly in the fourth quarter of last year, but little evidence of cumulating weakness appeared in the most recent data, and final demand had held up reasonably well.”

  This report: “real gross domestic product continued to rise in the first half of the year but less quickly than the economy's productive capacity was increasing, and margins of slack in labor and product markets thereby widened further.”

Financial conditions

• The report now highlights improved financial conditions with low interest rates and a rising stock market, whereas the previous report emphasized worsening conditions with falling equity prices and widening spreads. Read the section
  Quotes

  Previous report: “In the summer, equity prices fell, risk spreads widened, and liquidity eroded in corporate debt markets.”

  This report: “low interest rates and a rising stock market are helping hold down firms cost of capital”

• The report now notes improved financial conditions after the war, whereas the previous report highlighted falling equities and eroded liquidity. Read the section
  Quotes

  Previous report: “Equity prices fell during the summer, liquidity eroded in corporate debt markets, and risk spreads widened.”

  This report: “oil prices receded, and the improvement in the economic climate was sufficient to cause stock prices to rally, risk spreads on corporate securities to narrow, and consumer confidence to rebound.”

• The report now notes that investors expect the FOMC to begin tightening by mid-summer 2003, a shift from the previous report's focus on easing and uncertainty about policy direction. Read the section
  Quotes

  Previous report: “The size of the FOMC's November cut in the target federal funds rate and the shift to balance in its assessment of risks surprised market participants, but the policy easing appeared to lead investors to raise the odds that the economy would pick up from its sluggish pace.”

  This report: “Money market futures rates apparently embedded an expectation that the FOMC would begin increasing the federal funds rate as early as mid-summer 2003.”

International

• The report now describes foreign economic expansion as weak in the second quarter, whereas the previous report noted a rebound in 2002. Read the section
  Quotes

  Previous report: “The international economy rebounded in 2002 after a stagnant performance in 2001, but recovery was uneven in both timing and geographical distribution.”

  This report: “Foreign economic expansion appeared to remain weak in the second quarter despite the reduction in uncertainty associated with Iraq.”

Monetary policy

• The report now notes the FOMC eased in June, whereas the previous report said policy remained highly accommodative without further easing. Read the section
  Quotes

  Previous report: “Monetary policy remains highly accommodative”

  This report: “The Committee concluded that a slightly more expansive monetary policy would be warranted to add further support to the economic expansion.”

• The report now notes that central banks in several major foreign industrial countries eased policy, whereas the previous report said policy actions diverged. Read the section
  Quotes

  Previous report: “Monetary policy actions abroad also diverged across countries in 2002 as authorities reacted to differing economic conditions.”

  This report: “Central banks in several major foreign industrial countries moved to ease monetary policy during the first half of this year.”

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