July 2013 Monetary Policy Report

The report now describes stronger labor market gains, diminished downside risks, and a shift in financial conditions, with higher long-term rates and volatility. It also notes lower inflation expectations, a steeper expected federal funds rate path, and a change in policy guidance from date-based to outcome-based, emphasizing continued asset purchases until the labor market improves substantially.

Inflation

• The report now notes that market-based inflation expectations have declined this year, reversing their rise in the second half of 2012. Read the section
  Quotes

  Previous report: “Over the second half of the year, the price index for personal consumption expenditures increased at an annual rate of 1-1/2 percent.”

  This report: “Survey measures of longer-term inflation expectations have remained in the narrow ranges seen over the past several years, while market-based measures have declined so far this year, reversing their rise over the second half of 2012.”

Labor market

• The report now describes payroll gains averaging about 200,000 jobs per month, up from the previous 175,000 average pace. Read the section
  Quotes

  Previous report: “Employment increased at an average monthly pace of 175,000 in the second half of the year, about the same as in the first half.”

  This report: “Gains in payroll employment since the start of the year have averaged about 200,000 jobs per month, and various measures of underutilization in labor markets have continued to trend down.”

Financial conditions

• The report now highlights a significant rise in longer-term interest rates and increased volatility beginning in May, a reversal from the earlier easing. Read the section
  Quotes

  Previous 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.”

  This report: “However, beginning in May, longer-term interest rates rose significantly and asset price volatility increased as investors responded to somewhat better-than-expected economic data as well as Federal Reserve communications about monetary policy.”

• The report now says the expected federal funds rate path steepened and shifted up, with liftoff expected in Q2 2015, whereas previously it was expected around Q4 2014. Read the section
  Quotes

  Previous 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.”

  This report: “The expected path for the federal funds rate in 2014 and 2015 steepened . . .”  ·  “Market-based measures of the expected future path of the federal funds rate moved higher over the first half of the year”  ·  “The modal path of the federal funds rate--that is, the values for future federal funds rates that market participants see as most likely--derived from interest rate options shifted up considerably, especially around the June FOMC meeting”  ·  “suggesting that investors may now expect the target funds rate to lift off from its current range significantly earlier than they expected at the end of 2012”  ·  “dealers' expectations of the date of liftoff have moved up one quarter since the end of last year, to the second quarter of 2015”

• Credit conditions are now described as easing further, though still tight for lower-credit-score households, especially for mortgages. Read the section
  Quotes

  Previous report: “Nonetheless, credit remained tight for borrowers with lower credit scores, and borrowing conditions for small businesses continued to improve more gradually than for large firms.”

  This report: “Credit conditions generally have eased further, though they remain relatively tight for households with lower credit scores--and especially for such households seeking mortgage loans.”

Monetary policy

• The report now emphasizes that asset purchases will continue until the labor market outlook improves substantially, a condition not stated in the previous report. Read the section
  Quotes

  Previous report: “These actions were taken to put downward pressure on longer-term interest rates, support mortgage markets, and help make broader financial conditions more accommodative”

  This report: “The Committee reconfirmed at each meeting during the first half of 2013 that it would continue purchasing Treasury and agency MBS until the outlook for the labor market has improved substantially in a context of price stability.”

• The report now says a highly accommodative stance will remain appropriate for a considerable time after purchases end, replacing the previous date-based guidance of mid-2015. Read the section
  Quotes

  Previous 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.”

  This report: “The FOMC also has reiterated that a highly accommodative stance of monetary policy would remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.”

Projections

• The report now states that downside risks to the economy and labor market have diminished since the fall, rather than being little changed. Read the section
  Quotes

  Previous report: “At the time of the most recent FOMC meeting in January, Committee participants saw the economic outlook as little changed or modestly improved from the time of their December meeting, when the most recent Summary of Economic Projections (SEP) was compiled.”

  This report: “According to the Summary of Economic Projections (SEP), Committee participants saw the downside risks to the outlook for the economy and the labor market as having diminished since the fall.”

• The report now says a majority of participants saw uncertainty for growth and unemployment as similar to the past 20 years, whereas the previous report said uncertainty was unusually high. Read the section
  Quotes

  Previous report: “participants judged the uncertainty associated with the outlook for real activity and the unemployment rate to be unusually high compared with historical norms, with the risks weighted mainly toward slower economic growth and a higher unemployment rate”

  This report: “A majority of participants saw the uncertainty associated with their outlook for economic growth and the unemployment rate as similar to that of the past 20 years.”

• The report now says an equal number of participants indicated risks to GDP growth and unemployment were broadly balanced, whereas the previous report said risks were weighted toward slower growth and higher unemployment. Read the section
  Quotes

  Previous report: “participants judged the uncertainty associated with the outlook for real activity and the unemployment rate to be unusually high compared with historical norms, with the risks weighted mainly toward slower economic growth and a higher unemployment rate”

  This report: “An equal number of participants also indicated that the risks to the outlook for real gross domestic product (GDP) growth and the unemployment rate were broadly balanced.”

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