February 2014 Monetary Policy Report

The report now describes the FOMC's tapering of asset purchases and enhanced forward guidance, while emphasizing very low inflation and improved economic activity. It also introduces a new financial stability assessment and notes improved conditions abroad despite emerging-market turbulence.

Inflation

• The report now emphasizes very low inflation, with core PCE rising only 1 percent in the second half of last year, whereas the previous report noted stable expectations and declining market-based measures. Read the section
  Quotes

  Previous 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.”

  This report: “The price index for personal consumption expenditures rose at an annual rate of only 1 percent in the second half of last year”

Labor market

• The report now states nearly all participants made modest downward revisions to the unemployment rate path, reflecting a larger-than-expected decline, a shift from earlier projections. Read the section
  Quotes

  Previous report: “These projections were slightly lower than in March, with participants reacting to recent data indicating that the unemployment rate had declined by a little more than they had previously expected.”

  This report: “Nearly all participants made a modest downward revision to their projected path for the unemployment rate, reflecting its recent larger-than-expected decline”

Economic activity

• The report now states that real GDP growth picked up to a 3-3/4 percent annual rate in the second half of 2013, replacing the earlier description of moderate growth with a slower second quarter. Read the section
  Quotes

  Previous report: “Real economic activity continued to increase at a moderate pace in the first quarter of 2013, though available indicators suggest that the pace of economic growth was somewhat slower in the second quarter.”

  This report: “Real gross domestic product (GDP) is estimated to have risen at an annual rate of 3-3/4 percent, up from a 1-3/4 percent rate of increase in the first half.”  ·  “Real GDP is estimated to have increased at an annual rate of 3-3/4 percent over the second half of last year, up from a reported 1-3/4 percent pace in the first half (figure 11).”

• The report now notes that the housing recovery paused in the second half of 2013, whereas the previous report described a sustained recovery gaining traction. Read the section
  Quotes

  Previous report: “Activity in the housing market has continued to strengthen, supported by low mortgage rates, sustained job gains, and improved sentiment on the part of potential buyers.”

  This report: “Consumer spending, business investment, and exports all increased more rapidly in the latter part of last year. In contrast, the recovery in the housing sector appeared to pause in the second half of last year following increases in mortgage interest rates in the spring and summer.”  ·  “After increasing at close to a 15 percent annual rate in 2012 and the first part of 2013, residential investment was little changed in the second half of last year.”

Financial stability

• The report now includes a new assessment of financial stability, stating that the financial system strengthened with improved bank capital and liquidity, but overall vulnerability remains moderate. Read the section
  Quotes

  This report: “Capital and liquidity profiles at large bank holding companies improved further.”  ·  “Overall, the vulnerability of the system to adverse shocks remained at a moderate level.”

International

• The report now notes improved economic conditions abroad despite emerging-market turbulence, whereas the previous report cited subdued foreign growth damping export demand. Read the section
  Quotes

  Previous report: “Although federal fiscal policy is imposing a substantial drag on growth this year and export demand is still damped by subdued growth in foreign economies, some of the other headwinds that have weighed on the economic recovery have begun to dissipate.”

  This report: “economic conditions in the rest of the world improved overall despite recent turbulence in some emerging financial markets”

Monetary policy

• The report now describes the FOMC's tapering of asset purchases to $75 billion and then $65 billion per month, replacing the previous $85 billion pace. Read the section
  Quotes

  Previous report: “The FOMC also has continued its asset purchase program, purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.”

  This report: “the Committee decided that, beginning in January, it would add to its holdings of longer-term securities at a pace of $75 billion per month rather than $85 billion per month”

• The report now highlights enhanced forward guidance that the federal funds rate will likely stay low well past the unemployment threshold, a shift from the earlier balanced-approach statement. Read the section
  Quotes

  Previous report: “The Committee also stated that when it decides to begin to remove policy accommodation, it would take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”

  This report: “the Committee indicated its anticipation that it will likely maintain the current federal funds rate target well past the time that the unemployment rate declines below 6-1/2 percent”

• The report now describes the modal federal funds rate path as shifted down, with liftoff expected later, whereas the previous report described it as shifted up. Read the section
  Quotes

  Previous report: “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”

  This report: “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 also shifted down for horizons through 2017, suggesting that investors may now expect the target federal funds rate to lift off from its current range substantially later than they had expected at the end of June 2013.”

• The report now expects asset purchases to begin reducing in the first quarter of 2014 and conclude in the second half, whereas previously most participants saw ending late this year. Read the section
  Quotes

  Previous report: “About half of these participants indicated that it likely would be appropriate to end asset purchases late this year.”

  This report: “most participants judged that it would likely be appropriate to begin to reduce the pace of the Committee's purchases of longer-term securities in the first quarter of 2014 and to conclude purchases in the second half of the year.”

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