February 2015 Monetary Policy Report

The report now describes stronger labor market conditions and lower inflation, with market-based inflation compensation declining and oil prices slowing price gains. It highlights dollar appreciation and sluggish foreign growth weighing on net exports, and notes the FOMC's shift to 'patient' language for policy normalization. Financial stability risks are seen as moderate, with wider corporate credit spreads.

Inflation

• The report now says inflation is well below the 2 percent objective, with PCE inflation at 0.75 percent over the 12 months ending in December, down from 1.75 percent in May. Read the section
  Quotes

  Previous report: “Inflation, as measured by the price index for personal consumption expenditures (PCE), averaged 1-3/4 percent over the 12 months ending in May, higher than the unusually low level over the preceding 12 months but still somewhat below the Committee's 2 percent objective.”  ·  “The PCE price index rose 1-3/4 percent over the 12 months ending in May, up from the 1 percent increase recorded over the preceding 12 months”

  This report: “The price index for personal consumption expenditures (PCE) increased only 3/4 percent during the 12 months ending in December, a rate that is well below the Federal Open Market Committee's (FOMC) longer-run objective of 2 percent.”  ·  “In December, the PCE price index was only 3/4 percent above its level from a year earlier.”

• The report now notes that market-based measures of inflation compensation have declined since last summer, whereas the previous report said both survey- and market-based longer-term expectations remained stable. Read the section
  Quotes

  Previous report: “Meanwhile, both survey- and market-based measures of longer-term inflation expectations have remained stable.”

  This report: “Survey-based measures of longer-term inflation expectations have remained stable; however market-based measures of inflation compensation have declined since last summer.”

Labor market

• The report now describes stronger job gains and a lower unemployment rate, with payroll gains averaging about 280,000 per month since June and unemployment at 5.7 percent in January. Read the section
  Quotes

  Previous report: “Gains in payroll employment since the start of the year have averaged about 230,000 jobs per month, up a little from the average pace in 2013”  ·  “the unemployment rate declined to 6.1 percent in June, the lowest rate recorded in more than five years.”

  This report: “Job gains have averaged close to 280,000 per month since June, and the unemployment rate fell from 6.1 percent in June to 5.7 percent in January.”  ·  “Payroll employment has increased by an average of about 280,000 per month since June, almost 40,000 faster than in the first half of last year.”  ·  “declining from 6.1 percent in June to 5.7 percent in January of this year, a rate more than 4 percentage points below its peak in 2009”

Financial stability

• Corporate credit spreads are now described as having widened, especially for speculative-grade firms, whereas previously high-yield spreads were near the bottom of their decade range. Read the section
  Quotes

  Previous report: “Credit spreads on high-yield corporate bonds are near the bottom of their range over the past decade.”

  This report: “Risk spreads for corporate bonds have widened over recent months, especially for speculative-grade firms, in part because of concerns about the credit quality of energy-related firms, though yields remain near historical lows, reflecting low term premiums.”

• The report now characterizes the financial system's vulnerability as moderate with low-to-moderate leverage, whereas the previous report noted only modest increases in risk-taking. Read the section
  Quotes

  Previous 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.”

  This report: “The vulnerability of the U.S. financial system to financial instability has remained moderate, primarily reflecting low-to-moderate levels of leverage and maturity transformation.”

International

• The report now highlights a marked appreciation of the dollar since mid-2014, replacing the earlier assessment of little net change since the beginning of the year. Read the section
  Quotes

  Previous report: “The broad nominal value of the dollar is little changed, on net, since the beginning of the year (figure 38).”

  This report: “The broad nominal value of the dollar has increased markedly since the middle of 2014, with the U.S. dollar appreciating against almost all currencies”

• The report now describes sluggish growth abroad and dollar appreciation as weighing on net exports, whereas the previous report said faster foreign growth would support exports. Read the section
  Quotes

  Previous 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.”

  This report: “The gains in GDP have occurred despite continued sluggish growth abroad and a sizable appreciation of the U.S. dollar, both of which have weighed on net exports.”

Monetary policy

• The report now says the FOMC can be patient in beginning to normalize policy, replacing the prior language about maintaining the target range for a considerable time after asset purchases end. Read the section
  Quotes

  Previous report: “The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends.”

  This report: “the Committee indicated in its two most recent postmeeting statements that it can be patient in beginning to normalize the stance of monetary policy.”

• The report now says the asset purchase program ended in October, with total assets stabilized at about $4.5 trillion, whereas the previous report anticipated the program's conclusion. Read the section
  Quotes

  Previous report: “if the economy continues to evolve as anticipated, the Federal Reserve's asset purchase program will likely be concluded following the October meeting.”

  This report: “After the conclusion of the large-scale asset purchase program at the end of October, the Federal Reserve's total assets stabilized at around $4.5 trillion (figure 41).”

• The report now describes the expected federal funds rate path as flattened rather than edging down, while the timing of the initial increase is about unchanged. Read the section
  Quotes

  Previous report: “Market-based measures of the expected path of the federal funds rate through late 2017 edged down, on balance, over the first half of the year.”

  This report: “On balance, market-based measures of the expected (or mean) path of the federal funds rate through late 2017 have flattened, but the expected timing of the initial increase in the federal funds rate from its current target range was about unchanged.”

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