July 2004 Monetary Policy Report

The report now describes a well-established expansion with strong payroll gains, while noting core inflation has moved up from exceptionally low levels. It highlights the FOMC's June rate hike and its shift to removing accommodation at a measured pace. Financial conditions and international developments are also portrayed more favorably.

Inflation

• The report now describes core inflation as having moved up from exceptionally low levels, whereas the previous report emphasized its slowing in 2003. Read the section
  Quotes

  Previous report: “excluding food and energy, the PCE chain-type price index increased just 0.9 percent last year.”  ·  “The chain-type price index for PCE excluding food and energy rose just under 1 percent in 2003, about 3/4 percentage point less than in 2002.”

  This report: “Headline inflation has been boosted significantly by the jump in energy prices this year, but core inflation has also moved up from the exceptionally low levels of late 2003.”  ·  “core inflation has also moved up from the exceptionally low levels of late 2003.”  ·  “After rising just 1-1/2 percent over the four quarters of 2003, the price index for personal consumption expenditures (PCE) increased at an annual rate of 3-1/2 percent between the fourth quarter of 2003 and May 2004.”  ·  “increases in core consumer prices picked up to an annual rate of 2-1/4 percent--more than 1 percentage point faster than the increase in 2003.”

• The report now says Canadian inflation rose to 2.5 percent driven by energy costs, whereas the previous report described wide swings ending at 2 percent. Read the section
  Quotes

  Previous report: “Canadian consumer price inflation swung widely last year, rising to 4-1/2 percent on a twelve-month basis in February before falling to 1-1/2 percent in November and ending the year at 2 percent.”

  This report: “Consumer price inflation decreased early in the year, but energy costs helped drive up the rate to 2-1/2 percent over the twelve months ending in June.”

Labor market

• The report now highlights strong payroll gains averaging about 200,000 per month, replacing the earlier emphasis on job losses and slow recovery. Read the section
  Quotes

  Previous report: “Over the first eight months of the year, private nonfarm payroll employment fell, on average, more than 35,000 per month, extending the prolonged period of cutbacks that began in early 2001.”  ·  “However, by late in the summer, the labor market began to recover slowly.”  ·  “over the five months ending in January, private nonfarm establishments added, on average, about 85,000 jobs per month.”

  This report: “After averaging about 60,000 per month in the fourth quarter of 2003, gains in private nonfarm payroll employment rose to an average of about 200,000 per month in the first half of 2004.”  ·  “Especially notable was the turnaround in the manufacturing sector, in which employment bottomed out in January and then rose a cumulative 65,000 jobs through June.”

Economic activity

• The report now describes the expansion as increasingly well established in the first half of 2004, whereas it previously noted it gathered strength during 2003. Read the section
  Quotes

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

  This report: “The economic expansion in the United States became increasingly well established in the first half of 2004”

• The report now describes the euro-area economy as firming but lagging the global upturn, whereas the previous report noted it had contracted in the first half of 2003. Read the section
  Quotes

  Previous report: “The euro-area economy contracted in the first half of 2003, weighed down in part by geopolitical uncertainty and higher oil prices.”

  This report: “Economic conditions in the euro area firmed over the first half of 2004, but performance varied across countries, and the region as a whole continues to lag the global upturn.”

• The report now describes Japan's recovery as broadly based, whereas the previous report highlighted significant GDP growth led by private investment. Read the section
  Quotes

  Previous report: “Japanese real GDP recorded significant growth in 2003 for the second straight year. Private investment spending made the largest contribution to the expansion.”

  This report: “A broadly based recovery appears to have been established in Japan over the first half of 2004.”

Financial conditions

• The report now indicates that demand for business loans has begun to expand and banks have eased standards, whereas the previous report noted weak demand and tightening early in the year. Read the section
  Quotes

  Previous report: “Respondents to the Senior Loan Officer Opinion Survey on Bank Lending Practices noted that terms and standards on business loans were tightened during the first half of the year but that both had been eased considerably by year-end.”  ·  “They also reported that demand for business loans was quite weak for much of the year. However, despite the fact that outstanding levels of business loans continued to decline, survey responses in the last quarter of the year indicated that demand for loans had begun to stabilize.”

  This report: “The Federal Reserve's Senior Loan Officer Opinion Survey conducted in April 2004 indicated that demand for business loans had begun to expand and that commercial banks had again eased both standards and terms on these loans over the previous three months.”

International

• The report now notes the dollar rose slightly in the first half of 2004 after depreciating over the previous two years, whereas the previous report described a 9 percent depreciation in 2003. Read the section
  Quotes

  Previous 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.”

  This report: “After depreciating over the previous two years, the value of the dollar rose slightly, on balance, in the first half of 2004.”

Monetary policy

• The report now notes the FOMC raised the intended federal funds rate by 25 basis points at its June meeting, a policy action not mentioned in the previous report. Read the section
  Quotes

  This report: “the Committee's decision at its June meeting to raise the intended federal funds rate 25 basis points”

• The report now says the FOMC stated accommodation could be removed at a measured pace, whereas it previously said the FOMC could be patient in removing accommodation. Read the section
  Quotes

  Previous report: “it can be patient in removing its policy accommodation”

  This report: “could be "removed at a pace that is likely to be measured."”

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