February 2004 Monetary Policy Report

The report now describes a stronger economy, with growth accelerating in late 2003, payroll gains, and lower projected unemployment. Financial conditions are seen as increasingly supportive, with narrower risk spreads and bank easing. The dollar's decline is larger and attributed to improving conditions abroad, while foreign growth has rebounded.

Labor market

• The report now notes businesses began adding to payrolls, whereas the previous report said they continued to reduce payrolls. Read the section
  Quotes

  Previous report: “Businesses had continued to reduce their payrolls and postpone capital expenditures.”

  This report: “Businesses began to add to their payrolls, but only at a modest pace that implied additional sizable gains in productivity.”

• The report now projects unemployment at 5-1/4 to 5-1/2 percent for 2004, whereas the previous report expected 5-1/2 to 6 percent. Read the section
  Quotes

  Previous report: “decline to between 5-1/2 percent and 6 percent by the fourth quarter of 2004.”

  This report: “They expect that the unemployment rate, which has averaged 5-3/4 percent in recent months, will be between 5-1/4 percent and 5-1/2 percent in the fourth quarter of the year.”

Economic activity

• The report now describes the economy as gathering strength during 2003, whereas the previous report saw growth slower than capacity. Read the section
  Quotes

  Previous 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.”

  This report: “The economic expansion in the United States gathered strength during 2003 while price inflation remained quite low.”

• The report now describes a considerable strengthening of economic expansion in the second half of 2003, whereas the previous report noted sluggish activity in the first half. Read the section
  Quotes

  Previous report: “Economic activity in the United States remained sluggish in the first half of 2003.”

  This report: “The pace of economic expansion strengthened considerably in the second half of 2003 after almost two years of uneven and, on balance, sluggish growth.”

Financial conditions

• The report now highlights that financial conditions became increasingly supportive of growth, with risk spreads narrowing and equity markets rallying, whereas the previous report noted improved but less emphatic conditions. Read the section
  Quotes

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

  This report: “Domestic financial market conditions appeared to become increasingly supportive of economic growth last year.”  ·  “Although yields on Treasury coupon securities rose modestly on balance over the year, risk spreads on corporate debt narrowed to the point that yields on corporate issues declined.”  ·  “Equity markets began to rally when the uncertainty over the timing of military intervention in Iraq was resolved.”

• The report now notes risk spreads on both investment-grade and speculative-grade debt at their lowest since 1998, whereas the previous report only mentioned narrowing speculative-grade spreads. Read the section
  Quotes

  Previous report: “spreads on speculative-grade bonds tumbled about 150 basis points, to about 520 basis points, from mid-March until mid-May”

  This report: “Risk spreads on corporate debt declined, with the spreads on the debt of both investment-grade firms and speculative-grade firms ending 2003 at their lowest levels since 1998.”

• The report now says banks eased standards and terms on C&I loans by late year, while the previous report only noted low loan rates without mentioning easing. Read the section
  Quotes

  Previous report: “The average interest rate on commercial and industrial loan originations--a substantial majority of which have adjustable interest rates--has fallen to its lowest level since the start of the Federal Reserve's Survey of Terms of Business Lending in 1977.”

  This report: “Commercial banks appeared somewhat slower than bond investors to lend at more favorable terms; nevertheless, by late in the year, banks had eased both standards and terms on C&I loans.”

• The report now states the dollar depreciated 9 percent in 2003, a larger decline than the nearly 5 percent depreciation reported for the first half of 2003. Read the section
  Quotes

  Previous report: “Since the end of 2002, the dollar has depreciated on a trade-weighted basis nearly 5 percent against the currencies of a broad group of U.S. trading partners.”

  This report: “On balance, the dollar depreciated 9 percent during 2003 on a trade-weighted basis against the currencies of a broad group of U.S. trading partners.”

International

• The report now describes a rebound in foreign economic growth in the second half of last year, whereas the previous report noted weakness in the second quarter. Read the section
  Quotes

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

  This report: “Economic growth abroad rebounded in the second half of last year as factors that weighed on the global economy in the first half--including the SARS epidemic and uncertainty surrounding the war in Iraq--dissipated.”

Monetary policy

• The report now notes that the United Kingdom and Australia raised official rates by year-end, a change from the previous report's focus on easing in major foreign industrial countries. Read the section
  Quotes

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

  This report: “Monetary authorities abroad generally eased their policies during the first half of 2003 as economic activity stagnated. In the second half, market participants began to build in expectations of eventual monetary tightening abroad, and official interest rates were raised by year-end in the United Kingdom and Australia.”

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