July 2007 Monetary Policy Report

The report now describes slower job gains and a deeper negative personal saving rate, while highlighting subprime mortgage risks and financial market turmoil. It expects moderate growth with core inflation easing somewhat, and notes that the inventory correction has mostly run its course.

Inflation

• The report now expects core inflation to moderate a bit further over the next year and a half, whereas the previous report expected moderation over the next two years. Read the section
  Quotes

  Previous report: “increases in core consumer prices are expected to moderate, on balance, over the next two years.”

  This report: “Core inflation is expected to moderate a bit further over the next year and a half.”  ·  “FOMC participants generally expect core inflation to edge down a bit further over the next year and a half.”

• The report now emphasizes that headline inflation was boosted by energy and food prices, while core inflation was little changed, a shift from the previous emphasis on core inflation easing. Read the section
  Quotes

  Previous report: “Consumer price inflation, as measured by the rise in the PCE price index, moved down in the second half of 2006 after having stepped up in the first half.”  ·  “In addition, core PCE price inflation eased modestly over the second half of 2006.”

  This report: “Headline consumer price inflation was boosted by a reversal of the downturn in energy prices in late 2006 and a step-up in retail food prices, while core inflation was little changed.”

Labor market

• The report now notes that job gains slowed to 145,000 per month in the first half of 2007, down from 190,000 in 2006, whereas the previous report highlighted steady hiring. Read the section
  Quotes

  Previous report: “Nonfarm payroll employment increased 186,000 per month, on average, during the second half of 2006, a rate essentially the same as in the first half of the year.”

  This report: “After having averaged 190,000 per month in 2006, gains in payroll employment averaged 145,000 per month in the first half of 2007.”

Economic activity

• The report now expects moderate expansion in the second half of 2007 and gradual strengthening into 2008, whereas the previous report saw growth slightly below potential then rising to trend. Read the section
  Quotes

  Previous report: “growth of real gross domestic product in the United States appears likely to run slightly below that of the economy's potential over the next few quarters and then to rise to a pace around that of the economy's long-run trend.”

  This report: “The U.S. economy seems likely to continue to expand at a moderate pace in the second half of 2007 and in 2008.”  ·  “Economic activity appears poised to expand at a moderate rate in the second half of 2007, and it should strengthen gradually into 2008.”

• The report now says the inventory correction has mostly run its course, whereas the previous report noted more favorable incoming data without mentioning inventory correction. Read the section
  Quotes

  Previous report: “incoming data on inflation and economic activity were generally more favorable.”

  This report: “the inventory correction that had held down economic activity late last year and early this year seemed to have mostly run its course”

Financial conditions

• The report now notes that the personal saving rate fell to negative 1.25 percent in April and May, a deeper negative than the previous report's average of negative 1 percent for 2006. Read the section
  Quotes

  Previous report: “the personal saving rate declined further in 2006 and averaged negative 1 percent for the year as a whole.”

  This report: “it stood at negative 1-1/4 percent, on average, in April and May of 2007.”

• The report now highlights a period of financial market turmoil in late February, with equity price declines, followed by a recovery by early June. Read the section
  Quotes

  This report: “Global financial markets were calm at the beginning of 2007, and volatilities for many asset prices were at, or close to, record lows.”  ·  “As a result, equity prices in most industrial and emerging economies fell over the course of several days, while the yen appreciated sharply against most other currencies.”  ·  “More-placid conditions returned in early March, and by early June share prices around the world had posted solid gains, reaching multiyear highs or even record highs in many countries.”

Financial stability

• The report now highlights a notable repricing in subprime mortgages and risks of housing spillover to consumption, whereas the previous report only noted rising subprime delinquencies. Read the section
  Quotes

  Previous report: “Delinquency rates on consumer loans and on most types of mortgages remained low, although they increased markedly for subprime mortgages with variable interest rates.”

  This report: “Financial market conditions have continued to be generally supportive of economic expansion thus far in 2007, though there was a notable repricing in the subprime-mortgage sector.”  ·  “On the downside, the fall in housing construction could intensify or last longer than expected. In addition, persistent weakness in the housing sector could spill over to other sectors, especially consumption.”

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