June 2016 Monetary Policy Report

Inflation

• The report now notes PCE inflation at about 1 percent over 12 months, up from the 1/2 percent pace reported earlier, though still below target. Read the section
  Quotes

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

  This report: “the price index for personal consumption expenditures (PCE) increased only about 1 percent over the 12 months ending in April.”

• The report now adds elevated uncertainty about the U.K. referendum as a factor for keeping rates unchanged, which was not mentioned in the previous report. Read the section
  Quotes

  Previous report: “Inflation is expected to remain low in the near term, in part because of recent further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further.”

  This report: “The decision to maintain the target range for the federal funds rate also reflected the Committee's expectation that inflation would stay low in the near term, partly because of earlier declines in energy prices and in the prices of non-energy imports, as well as recently elevated uncertainty about the possible consequences of the U.K. referendum on European Union membership for the U.S. economic outlook.”

Labor market

• The report now describes labor market conditions as more mixed, with slower payroll gains, whereas previously it cited solid job gains. Read the section
  Quotes

  Previous report: “Payroll employment has increased at a solid average pace of 225,000 per month since June.”

  This report: “Payroll gains are reported to have slowed to an average of 80,000 per month in April and May (or about 100,000 after adjustment for the effects of a strike).”

Economic activity

• The report now indicates second-quarter data point to a step-up in growth, replacing the earlier emphasis on second-half slowdown. Read the section
  Quotes

  Previous report: “Real gross domestic product (GDP) is reported to have increased at an annual rate of about 1-1/4 percent over the second half of the year, slower than the first-half pace.”

  This report: “the available data for the second quarter point to a noticeable step-up in the pace of growth.”

• The report now projects real GDP growth of 2 percent for each year 2016-2018, matching the longer-run rate, whereas previously growth was expected to be somewhat above the longer-run rate in 2016-2017. Read the section
  Quotes

  Previous report: “FOMC participants generally expected that, under appropriate monetary policy, real gross domestic product (GDP) growth in 2016 and 2017 would be at or somewhat above their individual estimates of the longer-run growth rate and would converge toward its longer-run rate in 2018”  ·  “Participants generally projected that, conditional on their individual assumptions about appropriate monetary policy, real GDP would increase in 2016 and 2017 at a pace somewhat above their estimates of its longer-run rate.”

  This report: “The median of participants' projections for the growth of real gross domestic product (GDP) was 2 percent for each year from 2016 through 2018, in line with the median estimate of the longer-run growth rate of real GDP”

Financial conditions

• The report now says financial conditions have eased somewhat, whereas previously they were described as less supportive of growth. Read the section
  Quotes

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

  This report: “financial conditions have eased somewhat in recent months, and corporate bond yields have returned to historically low levels.”

Financial stability

• The report now highlights elevated corporate leverage as a vulnerability, adding a new risk not mentioned in the previous assessment. Read the section
  Quotes

  Previous report: “The U.S. financial system overall has been resilient to the stresses that have emerged since mid-2015, and financial vulnerabilities remain moderate.”

  This report: “leverage of nonfinancial corporations is elevated by historical standards, and lower-rated firms are potentially vulnerable to adverse developments.”

• The report now highlights increased valuation pressures in equities and CRE, whereas the previous report said overall asset valuation pressures had eased. Read the section
  Quotes

  Previous report: “Overall asset valuation pressures have eased.”

  This report: “Forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades.”  ·  “Valuations in the CRE sector appear increasingly vulnerable to negative shocks, as CRE prices have continued to outpace rental income and exceed, by some measures, their pre-crisis peaks.”

International

• Non-oil import prices are now reported to have risen in May, the first increase since 2014, whereas the previous report noted continued declines in the second half of 2015. Read the section
  Quotes

  Previous report: “After declining sharply in the first half of 2015, non-oil import prices continued to fall in the second half, albeit at a slightly more modest pace; the further declines in the second half reflected lower commodity prices as well as additional increases in the foreign exchange value of the dollar.”

  This report: “The rise in many nonfuel commodities prices, together with a weaker dollar, helped push non-oil import prices higher in May--the first increase since 2014 (figure 9).”

Monetary policy

• The report now cites global risks and slowing domestic growth as reasons for the unchanged stance, whereas the previous report cited labor market improvement and inflation outlook. Read the section
  Quotes

  Previous report: “The FOMC's decision reflected the considerable improvement in the labor market last year and the Committee's assessment that, even with the modest reduction in policy accommodation, the labor market would continue to strengthen and inflation would return over the medium term to the FOMC's 2 percent objective.”

  This report: “This unchanged policy stance was supported initially by the Committee's assessment that global economic and financial developments posed risks to the economic outlook, as expressed in its March 2016 statement, and by its judgment in April that growth in domestic economic activity appeared to have slowed.”

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