July 2006 Monetary Policy Report

The report now describes tighter financial conditions, with higher long-term rates and mortgage costs, and notes a slowing in housing activity. It also reports elevated inflation and core price pressures, while highlighting strong foreign growth and a weaker dollar. Additionally, it flags rising household debt burdens and the FOMC's plan to discuss communications.

Inflation

• The report now describes inflation as elevated and core inflation picking up, whereas the previous report described core inflation as subdued. Read the section
  Quotes

  Previous report: “As in 2004, headline inflation was boosted appreciably by soaring energy prices; however, core inflation remained subdued.”  ·  “Headline inflation continued to be boosted by soaring energy prices in 2005, while core inflation--which excludes the direct effects of movements in food and energy prices--remained subdued.”  ·  “Core PCE inflation subsequently subsided and came in a shade below 2 percent for the year as a whole.”

  This report: “Inflation picked up over the first five months of the year, boosted importantly by the effects of rising energy prices.”  ·  “Inflation pressures were elevated during the first half of 2006.”  ·  “Over the same period, core PCE prices increased at an annual rate of 2.6 percent, nearly 0.6 percentage point faster than over the twelve months of 2005.”

Economic activity

• The report now describes a slowing in housing activity, whereas the previous report noted improving labor market conditions supporting homebuilding. Read the section
  Quotes

  Previous report: “Improving labor market conditions and favorable financing terms were providing considerable support to consumer outlays and homebuilding activity”

  This report: “A slowing in activity now appears to be under way in the housing sector, where home sales and residential construction have receded from the elevated levels of last summer.”

Financial conditions

• The report now notes that longer-term interest rates have risen and increased borrowing costs, whereas the previous report described credit conditions as supportive. Read the section
  Quotes

  Previous report: “credit conditions remained supportive for businesses last year”

  This report: “Moreover, longer-term interest rates have risen, contributing to increased borrowing costs for both households and businesses.”

• The report now notes mortgage rates increased about 1 percentage point to 6-3/4 percent, whereas the previous report noted rates averaged close to 6-1/4 percent. Read the section
  Quotes

  Previous report: “Since October, they have averaged close to 6-1/4 percent, at the upper end of the narrow range that has prevailed since 2003 but still fairly low by historical standards.”

  This report: “Since the middle of 2005, the average rate for a thirty-year fixed-rate mortgage has increased about 1 percentage point, to 6-3/4 percent”

• The report now says the dollar has declined about 4-1/2 percent this year against major currencies, whereas the previous report said it had risen 2-1/2 percent since the beginning of 2005. Read the section
  Quotes

  Previous report: “Our broadest measure of the nominal trade-weighted exchange value of the dollar has risen 2-1/2 percent on net since the beginning of 2005.”

  This report: “The foreign exchange value of the dollar has declined about 4-1/2 percent, on net, this year against a basket of the currencies of the major industrial countries but is down only about 1 percent, on net, against the currencies of the other important trading partners of the United States.”

Financial stability

• The report now states the household financial obligations ratio exceeded its historical range, whereas the previous report said it was close to its earlier peak. Read the section
  Quotes

  Previous report: “the financial obligations ratio moved up to a level close to the peak that it had reached earlier this decade.”

  This report: “The ratio of household financial obligations to disposable income rose 0.1 percentage point in the first quarter to about 18-3/4 percent, narrowly exceeding the top of its historical range.”

• The report now includes an assessment that household balance sheets are generally sound, with low average delinquency rates on mortgages and consumer debt. Read the section
  Quotes

  This report: “Household balance sheets remain generally sound; although some pockets of distress have surfaced, average delinquency rates on mortgages and other consumer debt are still low.”

International

• The report now describes foreign growth as strong in the first quarter of 2006 with expansion spreading to all major regions, whereas the previous report noted strength in 2005 despite energy price increases. Read the section
  Quotes

  Previous report: “Foreign economic activity remained strong in 2005, as the global economy displayed resilience in the face of sizable increases in energy prices.”

  This report: “Foreign economic growth was strong in the first quarter of 2006 as the expansion spread to all major regions of the world.”

Monetary policy

• The report now says investors expect the target federal funds rate to ease after the end of the year, whereas the previous report noted expectations had edged up. Read the section
  Quotes

  Previous report: “To date in 2006, amid uneven incoming economic data, investors' expectations for the path of the target federal funds rate have edged up, as have intermediate- and longer-term nominal Treasury rates.”

  This report: “market participants currently appear to expect the target federal funds rate to ease after the end of the year.”

Other

• The report now mentions the FOMC's decision to begin consideration of communication issues at its August meeting and to lengthen meetings later in the year. Read the section
  Quotes

  This report: “decided to begin its consideration of communication issues at its August meeting and to lengthen meetings later this year to allow a fuller discussion of these issues.”

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