February 2017 Monetary Policy Report

The report now describes stronger labor market conditions, higher inflation, and more supportive financial conditions since mid-2016. It notes the FOMC's December rate hike and a steeper expected policy path, while also highlighting moderate financial vulnerabilities and uncertainty about fiscal policy.

Inflation

• The report now says consumer price inflation moved higher last year but remained below the 2 percent objective, whereas the previous report noted low inflation held down by energy and import prices. Read the section
  Quotes

  Previous report: “the price index for personal consumption expenditures (PCE) increased only about 1 percent over the 12 months ending in April.”  ·  “this index, which rose 1-1/2 percent over the 12 months ending in April, was partly restrained by lower prices for non-oil imported goods.”

  This report: “Consumer price inflation moved higher last year but remained below the FOMC’s longer-run objective of 2 percent.”

• The report now says market-based measures of inflation compensation have moved up notably in recent months, whereas the previous report described them as continuing to decline to very low levels. Read the section
  Quotes

  Previous report: “Market-based measures of longer-term inflation compensation--derived either from differences between yields on nominal Treasury securities and Treasury Inflation-Protected Securities or from inflation swaps--have continued to decline and now stand at very low levels.”

  This report: “TIPS-based inflation compensation (5 to 10 years forward), after declining to very low levels through the middle of 2016, has risen to nearly 2 percent”

Labor market

• The report now describes labor market conditions as continuing to strengthen over the second half of 2016, replacing the earlier mixed assessment of slower payroll gains and a lower unemployment rate. Read the section
  Quotes

  Previous 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).”

  This report: “Labor market conditions continued to strengthen over the second half of 2016.”

Economic activity

• The report now notes that business investment may be turning up after weakness, with equipment spending turning up in the fourth quarter, whereas the previous report emphasized softening in business fixed investment. Read the section
  Quotes

  Previous report: “An area of concern, however, is the softening in business fixed investment in recent quarters, even beyond those sectors most directly affected by the plunge in energy prices.”  ·  “A worrisome development in recent quarters has been the weakening in business fixed investment (private nonresidential fixed investment).”

  This report: “Business investment may be turning up after a period of surprising weakness”  ·  “Although such declines are unusual outside of a recession, spending on these items did turn up in the fourth quarter.”

Financial conditions

• The report now characterizes domestic financial conditions as generally supportive of economic growth since mid-2016, a shift from the earlier easing after volatility with historically low corporate bond yields. Read the section
  Quotes

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

  This report: “Domestic financial conditions have generally been supportive of economic growth since mid-2016 and remain so despite increases in interest rates in recent months.”

Financial stability

• The report now says financial vulnerabilities have continued to be moderate since mid-2016, whereas the previous report noted elevated corporate leverage and potential vulnerability of lower-rated firms. Read the section
  Quotes

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

  This report: “Financial vulnerabilities in the U.S. financial system overall have continued to be moderate since mid-2016.”

Monetary policy

• The report now notes the FOMC raised the federal funds rate target to 1/2 to 3/4 percent in December, after the previous report said the target range was unchanged at 1/4 to 1/2 percent. Read the section
  Quotes

  Previous report: “the Committee maintained that target range over the first half of the year.”

  This report: “In December, the FOMC raised the target for the federal funds rate to a range of 1/2 to 3/4 percent after maintaining it at 1/4 to 1/2 percent for a year.”

• The report now describes a significant steepening of the expected federal funds rate path after the U.S. elections, whereas it previously noted a decline since December. Read the section
  Quotes

  Previous report: “The turbulence in global financial markets early in the year, the FOMC's communications, and some indications of a slowing in the pace of improvement in the labor market of late contributed to market participants' expectation that U.S. monetary policy would be more accommodative than they had anticipated late last year.”

  This report: “Following the U.S. elections in November, the expected policy path in the United States steepened significantly, apparently reflecting investors’ expectations of a more expansionary fiscal policy.”

• The report now includes a statement that the Committee will continue reinvesting principal payments from its securities portfolio until normalization of the federal funds rate is well under way. Read the section
  Quotes

  This report: “the Committee has stated that it will continue to reinvest principal payments from its securities portfolio, and that it expects to maintain this policy until normalization of the level of the federal funds rate is well under way.”

Other

• The report now highlights substantial uncertainty about prospective fiscal policy changes, which could necessitate somewhat tighter monetary policy. Read the section
  Quotes

  This report: “Many participants noted that there was currently substantial uncertainty about the size, composition, and timing of prospective fiscal policy changes, but they also commented that a more expansionary fiscal policy might raise aggregate demand above sustainable levels, potentially necessitating somewhat tighter monetary policy than currently anticipated.”

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