February 2012 Monetary Policy Report

The report now describes improved labor market conditions, with unemployment falling to 8-1/4 percent and stronger payroll gains, while highlighting an intensified European fiscal crisis and elevated financial stress. It also notes policy easing abroad and domestically, including extended forward guidance and a new maturity extension program, with inflation expected to moderate.

Inflation

• The report now expects inflation to fall back in 2012 and remain at or below 2 percent, whereas the previous report saw core inflation staying roughly the same over the next two years. Read the section
  Quotes

  Previous report: “Participants generally saw the rate of core inflation as likely to stay roughly the same over the next two years as this year.”

  This report: “Participants viewed the upward pressures on inflation in 2011 from factors such as supply chain disruptions and rising commodity prices as having waned, and they anticipated that inflation would fall back in 2012.”  ·  “most participants expected inflation, as measured by the annual change in the price index for personal consumption expenditures (PCE), to be at or below the FOMC's objective of 2 percent”

Labor market

• The report now describes unemployment falling to 8-1/4 percent in January 2012, whereas the previous report noted it edging up to 9.2 percent in June 2011. Read the section
  Quotes

  Previous report: “the unemployment rate, which leveled off at around 9 percent in the early months of the year, has edged up since then, reaching 9.2 percent in June.”

  This report: “The unemployment rate moved down from around 9 percent over the first eight months of 2011 to 8-1/4 percent in January 2012.”

Economic activity

• The report now describes private payroll gains averaging 165,000 per month in the second half of 2011, whereas the previous report characterized activity as recovering modestly. Read the section
  Quotes

  Previous report: “Economic activity continued to recover over the first half of 2011, but the pace of the expansion has been modest.”

  This report: “private payroll employment gains averaged 165,000 jobs per month in the second half of 2011, a bit slower than the pace in the first half of the year, but gains in December and January were more robust, averaging almost 240,000”

Financial conditions

• The report now notes that LIBOR-OIS spreads widened considerably since July, whereas the previous report described them as remaining relatively narrow. Read the section
  Quotes

  Previous report: “Spreads of London interbank offered rates, or Libor, over comparable-maturity overnight index swap rates--a measure of stress in short-term bank funding markets--remained relatively narrow (figure 42).”

  This report: “On balance, spreads of London interbank offered rates (LIBOR) over comparable-maturity OIS rates--a measure of stress in short-term bank funding markets--have widened considerably since July, particularly for tenors beyond one month, though they have moved down since late last year.”

Financial stability

• The report now notes that roughly one in five mortgage holders have negative equity, down from one in four in March 2011. Read the section
  Quotes

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

  This report: “roughly one in five mortgage holders owe more on their mortgages than their homes are worth.”

International

• The report now highlights an intensified European fiscal and banking crisis, whereas the previous report noted financial conditions becoming more supportive of growth. Read the section
  Quotes

  Previous report: “On net, financial market conditions became somewhat more supportive of economic growth in the first half of 2011, partly reflecting the continued monetary policy accommodation provided by the Federal Reserve.”

  This report: “The European fiscal and banking crisis intensified in the second half of the year.”

• The report now describes the dollar appreciating about 3-1/2 percent since July, reversing the earlier depreciation of about 3-3/4 percent in the first half of the year. Read the section
  Quotes

  Previous report: “On net, the dollar is about 3-3/4 percent lower on a trade-weighted basis against a broad set of currencies over the first half of the year.”

  This report: “The foreign exchange value of the dollar has risen since July about 3-1/2 percent on a trade-weighted basis against a broad set of currencies (figure 52).”

Monetary policy

• The report now extends forward guidance to at least through late 2014, whereas previously it only anticipated low rates for an extended period. Read the section
  Quotes

  Previous report: “anticipated that economic conditions would likely warrant exceptionally low levels for the federal funds rate for an extended period.”

  This report: “In light of the economic outlook, most members also agreed to indicate that the Committee expects to maintain a highly accommodative stance for monetary policy and anticipates that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014, longer than had been indicated in recent FOMC statements.”

• The report now describes a new maturity extension program, replacing the completed $600 billion asset purchase program. Read the section
  Quotes

  Previous report: “the Committee should complete its $600 billion asset purchase program at the end of the month”

  This report: “Specifically, those members supported a program under which the Committee would announce its intention to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less.”

• The report now notes several foreign central banks eased monetary policy in the second half of last year, replacing the earlier expectation of only gradual tightening. Read the section
  Quotes

  Previous report: “Monetary policy remained accommodative in all the major AFEs, and market participants appear to expect only gradual tightening (figure 60).”

  This report: “Several foreign central banks in the AFEs eased monetary policy in the second half of last year (figure 63).”

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