February 2005 Monetary Policy Report

The report now describes 2004 as a year of continued expansion with appreciable employment gains, while core inflation remained well contained despite energy price increases. It details cumulative tightening of 1-1/2 percentage points through several rate hikes and projects lower GDP growth and core inflation for 2005. Financial conditions are seen as supportive, but household debt and obligations remain high.

Inflation

• The report now projects core PCE inflation of 1-1/2 to 1-3/4 percent for 2005, toward the lower end of the previous 1-1/2 to 2 percent range. Read the section
  Quotes

  Previous report: “For 2005, the central tendency of the projections for core PCE inflation is 1-1/2 percent to 2 percent.”

  This report: “FOMC participants project that the chain-type price index for personal consumption expenditures excluding food and energy (core PCE) will increase between 1-1/2 percent and 1-3/4 percent both this year and next”

• The report now highlights that core inflation remained well contained despite energy price increases, but no longer states that it ran above 2 percent in the first half. Read the section
  Quotes

  Previous report: “Core PCE inflation appears to have run a little above an annual rate of 2 percent in the first half of 2004.”

  This report: “core consumer price inflation (that is, excluding food and energy) remained well contained”

Labor market

• The report now describes payroll gains averaging 170,000 per month in 2004, whereas the previous report noted gains averaging about 200,000 per month in the first half of 2004. Read the section
  Quotes

  Previous 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.”

  This report: “Private payrolls, which turned up in late 2003, rose 170,000 per month last year, on average, and the unemployment rate declined below 5-1/2 percent by year-end and to 5-1/4 percent in January 2005--the lowest rates since 2001.”

Economic activity

• The report now describes 2004 as a year of continued expansion and appreciable employment gains, whereas the earlier report emphasized increasing momentum and remaining slack in the economy. Read the section
  Quotes

  Previous report: “The economic expansion in the United States became increasingly well established in the first half of 2004”  ·  “the productive capacity of the economy is still not being fully used and that the attendant slack is probably exerting some downward pressure on inflation”

  This report: “The year 2004 was marked by continued expansion in economic activity and appreciable gains in employment.”

Financial conditions

• The report now describes financial conditions as supportive for all of 2004, whereas the previous report noted support only in the first half of 2004. Read the section
  Quotes

  Previous report: “financial conditions in the first half of the year remained supportive of economic growth”

  This report: “Domestic financial conditions were supportive of economic growth in 2004.”

Financial stability

• The report now says household financial obligations and debt service measures were little changed and remained high, whereas the previous report noted they continued to edge down from peaks. Read the section
  Quotes

  Previous report: “In the first quarter of the year, the debt service ratio and the financial obligations ratio for the household sector in the aggregate, both of which gauge pre-committed expenditures relative to disposable income, continued to edge down from their peaks in 2001.”

  This report: “Measures of aggregate household financial obligations and debt service ... were little changed last year, on balance, though they remained high by historical standards.”

International

• The report now describes the dollar as depreciating against major currencies in 2004, whereas the previous report noted a slight rise in the first half of 2004. Read the section
  Quotes

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

  This report: “In 2004, the dollar depreciated about 7 percent, on net, against the euro, the U.K. pound, and the Canadian dollar.”

• The report now says Japanese GDP growth stagnated after the first quarter of 2004, whereas the previous report described a broadly based recovery. Read the section
  Quotes

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

  This report: “After increasing strongly in the first quarter, Japanese GDP growth stagnated in the remainder of 2004.”

Monetary policy

• The report now details cumulative tightening of 1-1/2 percentage points through several rate hikes, whereas the earlier report mentioned only the initial June increase to 1-1/4 percent. Read the section
  Quotes

  Previous report: “raised the federal funds rate 1/4 percentage point to 1-1/4 percent”

  This report: “The FOMC increased the target federal funds rate 25 basis points again at its meeting this month, bringing the cumulative tightening over the past year to 1-1/2 percentage points.”  ·  “the Committee voted to continue its removal of policy accommodation by raising its target for the federal funds rate from 2-1/4 percent to 2-1/2 percent”  ·  “the Federal Open Market Committee (FOMC) at its June meeting began to reduce the substantial degree of monetary accommodation that was in place.”

Projections

• The report now projects real GDP growth of 3-3/4 to 4 percent for 2005, lower than the previous projection of 3-1/2 to 4 percent for that year. Read the section
  Quotes

  Previous report: “The central tendency of the FOMC participants' forecasts for the increase in real GDP is 4-1/2 percent to 4-3/4 percent over the four quarters of 2004 and 3-1/2 percent to 4 percent in 2005.”

  This report: “The central tendency of the forecasts of real GDP growth made by the members of the Board of Governors and the Federal Reserve Bank presidents is 3-3/4 percent to 4 percent over the four quarters of 2005.”

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