July 2011 Monetary Policy Report

The report now describes slower employment gains, a more cautious view of financial conditions, and increased downside risks to growth. It also highlights new concerns about negative equity and European fiscal stresses, while noting the completion of the Treasury purchase program and a higher projected unemployment path.

Labor market

• The report now emphasizes that employment gains slowed markedly in May and June, whereas the previous report had described only gradual improvement since mid-2010. Read the section
  Quotes

  Previous report: “Conditions in the labor market have continued to improve only slowly since the middle of 2010.”

  This report: “In the labor market, employment gains picked up noticeably at the beginning of 2011 but slowed markedly in May and June.”

• The report now projects a higher unemployment rate path, with the 2011 central tendency raised to 8.6–8.9 percent from 8.4–8.7 percent in April. Read the section
  Quotes

  Previous report: “The central tendency of their forecasts for the unemployment rate at the end of 2011 was 8.8 to 9.0 percent--a decline of less than 1 percentage point from the actual rate in the fourth quarter of 2010.”

  This report: “participants marked up their forecasts for the unemployment rate over the entire forecast period”  ·  “For the fourth quarter of this year, the central tendency of their projections rose to 8.6 to 8.9 percent from 8.4 to 8.7 percent in April.”

Economic activity

• The report now describes risks to output growth as weighted to the downside, whereas previously they were broadly balanced with fewer downside risks. Read the section
  Quotes

  Previous report: “Most continued to see the risks surrounding their forecasts of GDP growth, the unemployment rate, and inflation over the next three years to be generally balanced. However, fewer noted downside risks to the likely pace of the expansion and, accordingly, upside risks to the unemployment rate than in November; fewer also saw downside risks to inflation.”

  This report: “Most participants viewed the risks to output growth as being weighted to the downside, and none saw those risks as weighted to the upside.”  ·  “Most participants now judged that the balance of risks to economic growth was weighted to the downside, and the rest viewed these risks as balanced.”

Financial conditions

• The report now says financial conditions became somewhat more supportive, a more cautious tone than the earlier 'generally improved' characterization. Read the section
  Quotes

  Previous report: “Conditions in financial markets generally improved over the course of the second half of 2010 and early 2011 and continued to be supportive of economic activity. This improvement reflected, in part, additional monetary policy stimulus provided by the Federal Reserve, as well as growing investor confidence in the sustainability of the economic recovery.”

  This report: “On net over the first half of the year, yields on Treasury securities and corporate debt and rates on fixed-rate residential mortgages declined, and equity prices rose significantly.”

• The report now describes Treasury yields as declining over the first half of 2011, whereas the previous report noted yields on 10-year Treasury securities had risen about 40 basis points from mid-2010. Read the section
  Quotes

  Previous report: “On net, yields on 2-year Treasury notes were up a bit from their levels in mid-2010, while those on 10-year Treasury securities rose approximately 40 basis points.”

  This report: “Yields on nominal Treasury securities declined, on balance, over the first half of 2011 (figure 36).”

• The report now emphasizes household strains—impaired balance sheets and house price declines—as restraining spending, replacing the earlier focus on a slow housing recovery. Read the section
  Quotes

  Previous report: “Most participants expected that the recovery in the housing market would remain slow, restrained by the overhang of vacant properties, prospects for weak house prices, and the difficulties in resolving foreclosures.”

  This report: “Most participants pointed to strains in the household sector, noting impaired balance sheets, continued declines in house prices, and persistently high unemployment as restraining the growth of consumer spending.”

Financial stability

• The report now highlights that roughly one in four mortgage holders had negative equity in March 2011, a new concern not mentioned in the previous report. Read the section
  Quotes

  This report: “In March 2011, roughly one in four mortgage holders owed more on their mortgages than their homes were worth.”

• The report now emphasizes worsening fiscal and financial stresses in Greece, Portugal, and Ireland with sovereign downgrades, whereas the previous report noted elevated spreads and ECB reliance. Read the section
  Quotes

  Previous report: “the spreads of yields on the sovereign bonds of the most vulnerable euro-area countries over those of German bonds remained elevated”  ·  “Afflicted in part by deposit flight and difficulties raising funds in the interbank market, Irish banks became increasingly dependent on funding from the ECB.”

  This report: “Fiscal and financial stresses worsened in Greece, Portugal, and Ireland over the first half of the year, with the major credit rating agencies downgrading significantly these countries' sovereign credit ratings.”  ·  “The spreads of yields on Greek, Portuguese, and Irish bonds over those on German bonds soared as market confidence in the ability of these three countries to meet their fiscal obligations diminished”

Monetary policy

• The report now notes the completion of the $600 billion Treasury purchase program, a development not mentioned in the previous report. Read the section
  Quotes

  This report: “At the end of June, the Federal Reserve completed its program of purchasing $600 billion of longer-term Treasury securities that was announced in November.”

• The report now notes a few participants worry that maintaining highly accommodative policy too long could raise inflation expectations, a shift from concerns about balance sheet expansion. Read the section
  Quotes

  Previous report: “A few of those who indicated that inflation risks were skewed to the upside expressed concerns that the expansion of the Federal Reserve's balance sheet, if left in place for too long, might erode the stability of longer-run inflation expectations.”

  This report: “A few participants noted the possibility that the current highly accommodative stance of monetary policy, if it were to be maintained longer than is appropriate, could lead to higher inflation expectations and actual inflation.”

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