February 2013 Monetary Policy Report

The report now describes improved labor market conditions and subdued inflation, with financial conditions easing due to FOMC accommodation and better European sentiment. It highlights new policy actions, including additional MBS purchases and numerical thresholds for forward guidance, and notes a later expected federal funds rate increase.

Inflation

• The report now notes subdued inflation with consumer prices rising at a 1.5 percent annual rate in the second half, whereas the previous report described inflation as stepping up then turning down. Read the section
  Quotes

  Previous report: “consumer price inflation, in part buffeted by sharp swings in the price of gasoline, stepped up early in the year but subsequently turned down, and longer-term inflation expectations remained stable”

  This report: “consumer prices rising at about a 1-1/2 percent annual rate in the second half”

Labor market

• The report now describes the unemployment rate as declining from 8-1/4 percent last summer to below 8 percent in January, whereas previously it was little changed at an elevated level. Read the section
  Quotes

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

  This report: “The unemployment rate moved down from 8-1/4 percent last summer to a little below 8 percent in January.”

Financial conditions

• The report now states broad financial conditions eased over the second half of 2012, whereas previously they were described as more accommodative due to FOMC policies. Read the section
  Quotes

  Previous report: “These policies put downward pressure on longer-term interest rates and made broad financial conditions more accommodative than they would otherwise be”

  This report: “Partly in response to this additional monetary accommodation, as well as to improved sentiment regarding the situation in Europe, broad financial conditions eased over the second half of 2012.”

International

• The report now mentions improved sentiment regarding Europe as a factor easing financial conditions, whereas previously the European crisis was a major source of strain. Read the section
  Quotes

  Previous report: “The European fiscal and banking crisis has remained a major source of strain on global financial markets.”

  This report: “Partly in response to this additional monetary accommodation, as well as to improved sentiment regarding the situation in Europe, broad financial conditions eased over the second half of 2012.”

• The report now identifies U.S. fiscal policy as the most frequently cited risk, ahead of Europe, whereas the previous report listed Europe first. Read the section
  Quotes

  Previous report: “The most frequently identified sources of risk were the situation in Europe, which many participants thought had the potential to slow global economic activity, particularly over the near term, and the fiscal situation in the United States.”

  This report: “The most frequently identified sources of risk were U.S. fiscal policy, which many participants thought had the potential to slow economic activity significantly over the near term, and the situation in Europe.”

Monetary policy

• The report now describes the FOMC's December replacement of date-based forward guidance with numerical thresholds, whereas previously it noted the January date-based guidance. Read the section
  Quotes

  Previous report: “In January, the Committee modified its forward rate guidance, noting that economic conditions were likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

  This report: “It also further modified its forward rate guidance, replacing the earlier date-based guidance with numerical thresholds for the unemployment rate and projected inflation.”

• The report now includes the September announcement of additional MBS purchases at $40 billion per month, a new policy action not mentioned in the previous report. Read the section
  Quotes

  This report: “In September, the Committee announced that it would continue its program to extend the average maturity of its Treasury holdings and would begin purchasing additional agency-guaranteed mortgage-backed securities (MBS) at a pace of $40 billion per month.”

• The report now says investors expect the first federal funds rate increase around the fourth quarter of 2014, later than previously expected, and the modal path suggests no increase until 2016. Read the section
  Quotes

  Previous report: “investors pushed out further the date when they expect the federal funds rate to first rise above its current target range of 0 to 1/4 percent. In addition, they apparently scaled back the pace at which they expect the federal funds rate subsequently to be increased.”

  This report: “interest rates on overnight index swaps indicate that investors currently anticipate that the effective federal funds rate will rise above its current target range around the fourth quarter of 2014, roughly four quarters later than they expected at the end of June 2012.”  ·  “the modal target rate path--the most likely values for future federal funds rates derived from interest rate options--suggests that investors think the rate is most likely to remain in its current range through the first quarter of 2016.”

• The report now states the FOMC strengthened forward guidance by indicating low rates were likely warranted at least through mid-2015, extending the previous late-2014 horizon. Read the section
  Quotes

  Previous report: “economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014”

  This report: “noting that exceptionally low levels for the federal funds rate were likely to be warranted at least through mid-2015, longer than had been indicated in previous FOMC statements.”

• The report now reports Federal Reserve total assets increased to $3,097 billion as of February 2013, up $231 billion from end-June 2012, reversing the earlier decline. Read the section
  Quotes

  Previous report: “Total assets of the Federal Reserve decreased to $2,868 billion as of July 11, 2012, about $60 billion less than at the end of 2011 (table 1).”

  This report: “Total assets of the Federal Reserve increased to $3,097 billion as of February 20, 2013, $231 billion more than at the end of June 2012 (table 1).”

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