July 2012 Monetary Policy Report

The report now describes weaker labor market conditions, with slower payroll gains and elevated unemployment, and lower inflation. It highlights improved financial conditions, including lower yields and reduced bank stress, while noting increased mortgage distress. The FOMC extended its maturity extension program and adopted an explicit 2 percent inflation target.

Inflation

• The report now says consumer price inflation over the first five months of 2012 was lower than in 2011, replacing the earlier focus on second-half 2011 slowing. Read the section
  Quotes

  Previous report: “After rising at an annual rate of 3-1/2 percent in the first half of the year, prices for personal consumption expenditures (PCE) rose just 1-1/2 percent in the second half.”

  This report: “consumer price inflation over the first five months of 2012 was lower, on net, than in 2011”

• The report now states the FOMC considers 2 percent PCE inflation most consistent with its mandate, a new explicit target not in the previous report. Read the section
  Quotes

  This report: “the FOMC stated that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate.”

Labor market

• The report now notes private payroll gains averaged 225,000 in the first quarter but fell to 90,000 in the second, a shift from the earlier 165,000 average. Read the section
  Quotes

  Previous 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”

  This report: “gains in private payroll employment averaged 225,000 jobs per month in the first quarter, up from 165,000 jobs per month in the second half of last year, but fell back in the second quarter to just 90,000 jobs per month”

• The report now describes the unemployment rate as little changed at an elevated level since January, rather than noting a decline to 8-1/4 percent. Read the section
  Quotes

  Previous 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.”

  This report: “the unemployment rate has been little changed at an elevated level since January”

• The report now marks up unemployment projections for 2012-13, reversing the previous report's downward revisions, reflecting weaker GDP growth. Read the section
  Quotes

  Previous report: “With the unemployment rate having declined in recent months by more than participants had anticipated in the previous Summary of Economic Projections (SEP), they generally lowered their forecasts for the level of the unemployment rate over the next two years.”

  This report: “Consistent with the downward revisions to their projections for real GDP growth in 2012 and 2013, nearly all participants marked up their assessments for the rate of unemployment.”

Financial conditions

• The report now highlights declines in longer-term yields and mortgage rates to historically low levels, replacing the earlier note that corporate spreads remained elevated. Read the section
  Quotes

  Previous report: “Corporate bond spreads remain elevated.”

  This report: “yields on longer-term Treasury securities and corporate debt as well as rates on residential mortgages declined, on net, and reached historically low levels at times during the first half of the year”

• The report now says about one in four mortgage borrowers is underwater, up from roughly one in five in the previous report. Read the section
  Quotes

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

  This report: “Roughly one in four mortgage borrowers is underwater on his or her mortgage--nearly 13 million households in all.”

Financial stability

• The report now says credit default swap spreads for large banks declined about 60 basis points but remained high, rather than noting widening since last summer. Read the section
  Quotes

  Previous report: “credit default swap spreads for U.S. financial institutions have widened, on net, since early last summer.”

  This report: “An index of credit default swap spreads for the large bank holding companies declined about 60 basis points, but those spreads remained at a high level.”

Monetary policy

• The report now notes the maturity extension program was extended through end-2012, whereas the previous report described it as ending in June 2012. Read the section
  Quotes

  Previous 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.”

  This report: “the Committee agreed to continue the MEP through the end of the year, instead of ending the program in June as had been planned”

• The report now indicates a majority favored extending the maturity extension program through end-2012, whereas the previous report noted only a few saw additional asset purchases. Read the section
  Quotes

  Previous report: “A few participants judged that, given their current assessments of the economic outlook, appropriate policy would include additional asset purchases in 2012, and one assumed an early ending of the maturity extension program.”

  This report: “A majority of participants judged that appropriate monetary policy would involve an extension of the maturity extension program (MEP) through the end of 2012.”

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