March 2011 Monetary Policy Report

The report now describes a sustained but modest recovery with above-trend GDP growth, improved labor market conditions, and stable inflation expectations, while noting greater uncertainty. Financial conditions are seen as supportive, with rising equities and narrowing spreads, but housing remains weak and foreclosures have jumped. Risks to growth are now broadly balanced.

Inflation

• The report now emphasizes stable longer-term inflation expectations and downward-trending underlying inflation, whereas the previous report noted core PCE inflation slowing to 1 percent. Read the section
  Quotes

  Previous report: “core PCE--slowed from 1-1/2 percent over the 12 months of 2009 to an annual rate of 1 percent over the first five months of 2010.”

  This report: “longer-term inflation expectations remained stable, and measures of underlying consumer price inflation continued to trend downward on net.”

Labor market

• The report now notes modest employment gains and a wide slack margin, while the previous report highlighted high unemployment averaging 9-3/4 percent. Read the section
  Quotes

  Previous report: “the unemployment rate, which averaged 9-3/4 percent in the second quarter, only slightly below its recession high of 10 percent in the fourth quarter of 2009.”

  This report: “Employment gains have been modest, and although the unemployment rate fell noticeably in December and January, the margin of slack in the labor market remains wide.”

Economic activity

• The report now describes housing activity as exceptionally weak, whereas previously it noted only marginal improvement since bottoming out. Read the section
  Quotes

  Previous report: “In contrast, the underlying pace of activity in the housing sector has improved only marginally since hitting bottom in 2009.”  ·  “underlying housing activity appears to have remained weak this year despite a historically low level of mortgage interest rates.”

  This report: “consumer spending has risen solidly on average, businesses have continued to increase their outlays for equipment and software, and exports have moved up further. In contrast, construction of new homes and nonresidential buildings remains exceptionally weak.”

Financial conditions

• The report now describes financial conditions as supportive with rising equity prices, replacing the previous report's focus on volatility and funding strains from European fiscal concerns. Read the section
  Quotes

  Previous report: “uncertainty about the consequences of the fiscal pressures in a number of European countries and about the durability of the global recovery led to large declines in equity prices around the world and produced strains in some short-term funding markets.”

  This report: “Financial market conditions continued to be supportive of economic growth in the second half of 2010 and into 2011. Equity prices rose solidly, reflecting the more accommodative stance of monetary and fiscal policy, an improved economic outlook, and better-than-expected corporate earnings reports.”

• The report now reports sharply rising equity prices since mid-2010, whereas the previous report noted a second-quarter decline. Read the section
  Quotes

  Previous report: “broad equity price indexes, which rose in the first quarter, owing both to relatively strong earnings reports and to some better-than-expected economic data releases, fell back in the second quarter”

  This report: “Equity prices have risen sharply since mid-2010 ... The rally began amid expectations of further monetary policy accommodation and was further supported by robust corporate earnings and an improved economic outlook.”

• The report now describes narrowing corporate bond spreads, reversing the earlier widening, with high-yield spreads narrowing substantially. Read the section
  Quotes

  Previous report: “Yields on corporate bonds rated AA and BBB fell by less than those on comparable-maturity Treasury securities over the first half of the year, resulting in a noticeable increase in risk spreads”  ·  “Yields on speculative-grade corporate bonds fell during much of the first quarter but rose sharply during the second, leaving yields higher on net over the period and spreads somewhat more elevated.”

  This report: “the spreads between the yields on investment-grade corporate bonds and those on comparable-maturity Treasury securities narrowed modestly”  ·  “Similar risk spreads on corporate bonds with below-investment-grade ratings narrowed more substantially--as much as 200 basis points.”

Financial stability

• The report now notes foreclosures jumped to over 700,000 in Q3 2010, whereas previously they were slightly below the 2009 pace. Read the section
  Quotes

  Previous report: “About 650,000 homes entered the foreclosure process in the first quarter of 2010, only slightly below the elevated pace seen in 2009.”

  This report: “Reflecting the ongoing credit quality issues, the number of homes that entered foreclosure in the third quarter of 2010 jumped to more than 700,000, well above the pace seen earlier in the year.”

Projections

• The report now projects a sustained but modest recovery with above-trend GDP growth, whereas the previous report had weaker growth projections than in April. Read the section
  Quotes

  Previous report: “participants' current projections for economic growth are somewhat weaker than those prepared for the April FOMC meeting, and unemployment is expected to fall even more slowly than had been anticipated in April.”

  This report: “FOMC participants anticipated that real GDP would increase at above-trend rates over the next three years, but not as rapidly as in previous recoveries.”

• The report now sees risks to growth as broadly balanced, whereas previously about half judged them tilted to the downside. Read the section
  Quotes

  Previous report: “About one-half of the participants now judged the risks to the growth outlook to be tilted to the downside, while most continued to see balanced risks surrounding their inflation projections.”

  This report: “Almost all participants viewed the risks to their forecasts for the strength of the recovery in real GDP as broadly balanced. By contrast, in November, the distribution of views had been somewhat skewed to the downside.”

• The report now says uncertainty is greater than historical norms, while the previous report indicated greater downside risks than in April. Read the section
  Quotes

  Previous report: “the participants also indicated somewhat greater concern about the downside risks to the economic outlook than they had at the time of the April meeting.”

  This report: “Participants generally judged that the uncertainty attached to their projections for both economic activity and inflation was greater than historical norms.”

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