February 2016 Monetary Policy Report

The report now describes weaker inflation and financial conditions, with the FOMC having raised rates in December and expecting gradual increases. It also notes slower growth, lower inflation expectations, and rising corporate leverage, while highlighting the renminbi's depreciation and a warning against delaying normalization.

Inflation

• The report now describes inflation as held down by energy and import prices, whereas the previous report cited only non-energy import prices as a restraint. Read the section
  Quotes

  Previous report: “Changes in the PCE price index excluding food and energy items, which are often a better indicator of where overall inflation will be in the future, also remained relatively low; this index rose 1-1/4 percent over the 12 months ending in May, partly restrained by declines in the prices of non-energy imported goods.”

  This report: “The price index for personal consumption expenditures (PCE) rose only 1/2 percent over the 12 months ending in December.”

• The report now says longer-run inflation expectations have drifted down, whereas the previous report described them as stable. Read the section
  Quotes

  Previous report: “Meanwhile, survey-based measures of longer-run inflation expectations have remained relatively stable; market-based measures of inflation compensation have moved up somewhat from their lows earlier this year but remain below levels that prevailed until last summer.”

  This report: “survey-based measures of longer-run inflation expectations have drifted down a little since the middle of last year and generally stand near the lower ends of their historical ranges”

Labor market

• The report now states the unemployment rate has reached the FOMC's median estimate of its longer-run normal level, whereas previously it was described as close to that estimate. Read the section
  Quotes

  Previous report: “the unemployment rate edged down slightly to 5.3 percent in June, close to most Federal Open Market Committee (FOMC) participants' estimates of its longer-run normal level.”

  This report: “The unemployment rate fell from 5.3 percent in June to 4.9 percent in January and thus has reached the median estimate among Federal Open Market Committee (FOMC) participants of the level of unemployment that is considered to be normal in the longer run.”

Economic activity

• The report now describes real GDP growth as slowing to 1-1/4 percent in the second half of 2015, whereas previously it anticipated a pickup in the second quarter. Read the section
  Quotes

  Previous report: “real gross domestic product (GDP) was reported to have been little changed in the first quarter of this year. Some of this weakness likely was the result of temporary factors, and recent indicators suggest that economic activity picked up in the second quarter;”

  This report: “real gross domestic product (GDP) increased at an annual rate of 1-1/4 percent over the second half of 2015, slower than in the first half.”

Financial conditions

• The report now says domestic financial conditions have become less supportive of growth, whereas the previous report said they generally supported growth. Read the section
  Quotes

  Previous report: “After having declined notably in 2014, longer-term interest rates have increased somewhat, on net, over the first half of the year, but they remain at historically low levels. Broad measures of U.S. equity prices have been little changed, on balance, this year after having risen considerably in recent years.”

  This report: “Domestic financial conditions have become somewhat less supportive of economic growth since mid-2015.”

Financial stability

• The report now highlights rising leverage of nonfinancial firms to historical highs, especially in oil, whereas the previous report focused on commercial real estate and leveraged loan underwriting. Read the section
  Quotes

  Previous report: “prices and valuations for commercial real estate have increased further, and underwriting standards for leveraged loans are still a concern”

  This report: “leverage of such firms has risen to historical highs, especially among those in the oil industry”

International

• The report newly highlights the renminbi's depreciation in August and after the turn of the year, linking it to global market turbulence and further dollar appreciation. Read the section
  Quotes

  This report: “The PBOC allowed the renminbi to depreciate 3 percent against the dollar in August and another 1-1/2 percent after the turn of the year.”  ·  “These developments, which contributed to intensified uncertainty about China's exchange rate policy and the prospects for its economy, fostered episodes of global market turbulence that further boosted the dollar.”

Monetary policy

• The report now notes the FOMC raised the federal funds rate target range in December, whereas the previous report said the range was maintained at 0 to 1/4 percent. Read the section
  Quotes

  Previous report: “As a result, it has maintained the exceptionally low target range of 0 to 1/4 percent for the federal funds rate and has kept the Federal Reserve's holdings of longer-term securities at their current elevated levels to help maintain accommodative financial conditions.”

  This report: “In December, after holding the federal funds rate near zero for seven years, the FOMC raised the target range for that rate to 1/4 to 1/2 percent.”

• The report now says the Committee expects only gradual increases in the federal funds rate, whereas the previous report said the Committee anticipated raising the target range when conditions were met. Read the section
  Quotes

  Previous report: “Since its April meeting, the Committee has stated it anticipates that raising the target range for the federal funds rate will be appropriate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”

  This report: “The Committee anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”

• The report now warns that delaying normalization too long could require abrupt tightening, potentially disrupting financial markets and causing recession. Read the section
  Quotes

  This report: “if the FOMC delayed the start of policy normalization for too long, a relatively abrupt tightening of policy might eventually be needed to keep the economy from overheating and inflation from significantly overshooting the Committee's 2 percent objective.”  ·  “Such an abrupt tightening could disrupt financial markets and perhaps even inadvertently push the economy into recession.”

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