February 2006 Monetary Policy Report

The report now shows lower core inflation, slightly higher growth projections, and a tighter labor market accruing through 2005. It also notes tighter financial conditions, higher energy prices from Hurricane Katrina, and a shift in global monetary policy, with the ECB and Bank of Mexico adjusting rates. The FOMC's own actions are not described.

Inflation

• The report now reports core inflation of less than 2 percent for 2005, whereas the previous report noted a rise to about 2 percent in the first half. Read the section
  Quotes

  Previous report: “core inflation increased from an annual rate of 1-1/2 percent in 2004 to about 2 percent between the fourth quarter of 2004 and May 2005.”

  This report: “Core consumer price inflation ... totaled less than 2 percent over the year as a whole.”

Labor market

• The report now notes the unemployment rate fell to 4.7 percent in January 2006, a further decline from the 5 percent level cited in the previous report. Read the section
  Quotes

  Previous report: “The jobless rate stood at 5 percent in June, the lowest level since September 2001.”

  This report: “In January 2006, it decreased to 4.7 percent.”

Economic activity

• The report now puts net national saving at 1-1/2 percent of GDP in the first half of 2005, lower than the 3-1/4 percent figure cited in the previous report. Read the section
  Quotes

  Previous report: “net national saving rose to just 3-1/4 percent of nominal GDP in the first quarter, well below the long-term historical average of about 7 percent”

  This report: “Measured net of estimated depreciation, national saving in the first half of 2005 was equal to just 1-1/2 percent of GDP, about the same as in 2004 and well below the recent highs of more than 6 percent of GDP in the late 1990s.”

Financial conditions

• The report now describes financial conditions as having withstood strains in 2005, rather than being generally accommodative as in the first half of 2005. Read the section
  Quotes

  Previous report: “Financial market conditions remained generally accommodative during the first half of 2005, as Treasury and private interest rates stayed low.”

  This report: “Longer-term market interest rates remained low, corporate risk spreads stayed relatively narrow by historical standards, and equity prices advanced modestly.”

• The report now says the dollar appreciated about 15 percent versus the euro and yen since early 2005, up from the earlier 12 percent and 9 percent figures. Read the section
  Quotes

  Previous report: “The dollar has appreciated about 12 percent against the euro and about 9 percent against the yen and sterling since the start of the year.”

  This report: “Since the start of 2005, the dollar has appreciated about 15 percent versus the euro and the Japanese yen, and 10 percent against the British pound.”

International

• The report now notes that Hurricane Katrina disrupted energy production and boosted energy prices, a factor not mentioned in the previous report. Read the section
  Quotes

  This report: “including considerable disruption of energy production--and the accompanying further boost to energy prices”

Monetary policy

• The report now notes the ECB tightened 25 basis points late in 2005, replacing the earlier statement that the ECB had held its policy rate constant since June 2003. Read the section
  Quotes

  Previous report: “The European Central Bank has held its policy rate constant since June 2003”

  This report: “The European Central Bank, which had maintained its main policy interest rate at 2 percent since the middle of 2003, tightened 25 basis points late in 2005, citing a need to keep inflation expectations in check.”

• The report now says the Bank of Mexico began easing in August 2005, whereas it previously described continued tightening cycles in Latin America. Read the section
  Quotes

  Previous report: “several Latin American monetary authorities have continued tightening cycles that began last year in efforts to restrain inflationary pressures.”

  This report: “The soft economy and an improved outlook for inflation led the Bank of Mexico to begin easing policy in August 2005”

Projections

• The report now projects real GDP growth of about 3-1/2 percent in 2006 and 3 to 3-1/2 percent in 2007, whereas the previous report projected 3-1/4 to 3-1/2 percent for 2006. Read the section
  Quotes

  Previous report: “The central tendency of the FOMC participants' forecasts for the increase in real (that is, inflation adjusted) GDP is 3-1/2 percent over the four quarters of 2005 and 3-1/4 percent to 3-1/2 percent in 2006.”

  This report: “The central tendency of the FOMC participants' forecasts for the increase in real GDP is about 3-1/2 percent over the four quarters of 2006 and 3 percent to 3-1/2 percent in 2007.”

• The report now expects core PCE inflation of about 2 percent in 2006, whereas the previous report projected 1-3/4 to 2 percent for that year. Read the section
  Quotes

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

  This report: “the FOMC participants expect that the price index for personal consumption expenditures excluding food and energy (core PCE) will rise about 2 percent in 2006 and between 1-3/4 percent and 2 percent in 2007.”

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