July 2014 Monetary Policy Report

The report now describes stronger labor market improvement, higher inflation, and a shift from unemployment thresholds to qualitative guidance. It highlights increased financial risk-taking, faster global growth, and updated policy normalization details, including lower asset purchases and higher rate projections.

Inflation

• The report now says inflation has risen this year, with PCE up 1-3/4 percent over 12 months, compared with the previous report's 1 percent rise. Read the section
  Quotes

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

  This report: “Inflation has moved up this year following unusually low readings in 2013, but it has remained somewhat below the Federal Open Market Committee's (FOMC) longer-run goal of 2 percent.”  ·  “The price index for personal consumption expenditures (PCE) rose 1-3/4 percent over the 12 months ending in May, up from an increase of only 1 percent a year earlier.”

Labor market

• The report now describes stronger labor market improvement, with payroll gains averaging 230,000 and unemployment at 6.1 percent, while still noting significant slack. Read the section
  Quotes

  Previous report: “the unemployment rate remains well above levels that FOMC participants judge to be sustainable in the longer run.”

  This report: “Gains in payroll employment picked up to an average monthly pace of about 230,000, and the unemployment rate fell to 6.1 percent in June, nearly 4 percentage points below its peak in 2009.”

Economic activity

• The report now notes real residential investment declined for two consecutive quarters around the turn of the year, whereas the previous report said it was little changed in the second half of 2013. Read the section
  Quotes

  Previous report: “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.”

  This report: “Real residential investment declined for two successive quarters around the turn of the year, and the available data point to only a modest gain in the second quarter (figure 27).”

Financial conditions

• The report now describes longer-term Treasury yields declining significantly in the first half of 2014, whereas the previous report said they rose moderately in the second half of 2013. Read the section
  Quotes

  Previous report: “yields on longer-term Treasury securities and agency mortgage-backed securities (MBS) rose moderately over the second half of 2013”

  This report: “yields on longer-term Treasury securities drifted down over the first half of 2014 and now stand at fairly low levels by historical standards”  ·  “the yields on the 10- and 30-year securities decreased about 50 basis points and 60 basis points, respectively”

Financial stability

• The report now highlights modestly increased risk-taking and signs of excesses in some sectors, whereas the previous report only noted moderate overall vulnerability. Read the section
  Quotes

  Previous report: “Overall, the vulnerability of the system to adverse shocks remained at a moderate level.”

  This report: “Signs of risk-taking that could leave segments of the U.S. financial sector vulnerable to possible adverse events have increased modestly this year, albeit from a subdued level.”

International

• The report now says growth abroad quickened in the second quarter, supporting exports, compared with the previous report's broader improvement despite emerging-market turbulence. Read the section
  Quotes

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

  This report: “The pace of economic growth abroad also appears to have quickened in the second quarter following weakness earlier this year, which should provide support for export sales.”

Monetary policy

• The report now notes the FOMC replaced numerical unemployment thresholds with qualitative guidance in March, whereas the previous report described enhanced forward guidance tied to the 6-1/2 percent threshold. Read the section
  Quotes

  Previous 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”

  This report: “the Committee decided at its March meeting to replace the numerical thresholds with a qualitative characterization of its approach to determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate.”

• The report now includes a new statement that the FOMC is confident it has tools to raise rates when needed and will provide more normalization information later this year. Read the section
  Quotes

  This report: “The FOMC remains confident that it has the tools it needs to raise short-term interest rates when the time is right and to achieve the desired level of short-term interest rates thereafter, even while the Federal Reserve is holding a very large balance sheet.”

• The report now describes further measured reductions in asset purchases, with monthly MBS purchases down to $15 billion and Treasury purchases to $20 billion, compared with $35 billion and $40 billion earlier. Read the section
  Quotes

  Previous report: “the Committee announced at the December meeting that it would reduce the pace of its purchases of agency MBS from $40 billion to $35 billion per month and reduce the pace of its purchases of longer-term Treasury securities from $45 billion to $40 billion per month.”  ·  “The Committee continued to see improvements in economic conditions and the labor market outlook at the January meeting and further reduced the pace of its asset purchases to $30 billion per month for agency MBS and $35 billion per month for longer-term Treasury securities.”

  This report: “beginning in July, the Committee is adding to its holdings of agency MBS at a pace of $15 billion per month (compared with $35 billion per month at the beginning of the year)”  ·  “is adding to its holdings of longer-term Treasury securities at a pace of $20 billion per month (compared with $40 billion per month at the beginning of the year)”

• The report now says the median federal funds rate projections for end-2015 and 2016 increased to 1.13 and 2.50 percent, whereas the previous report had lowered them by a quarter point. Read the section
  Quotes

  Previous report: “the median value of the rate at the end of 2015 and 2016 decreased 1/4 percentage point.”

  This report: “the median values of the federal funds rate at the end of 2015 and 2016 increased 13 basis points and 25 basis points to 1.13 percent and 2.50 percent, respectively”

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