February 2018 Monetary Policy Report

The report now describes stronger labor market conditions, with lower unemployment and faster payroll gains, and notes a rise in headline inflation but a larger decline in core inflation. It also reports the FOMC's December rate increase and initiated balance sheet reduction, and highlights a more stimulative fiscal policy and increased financial stability concerns.

Inflation

• Headline PCE inflation is now reported at 1.7 percent for the 12 months ending in December, up from 1.4 percent in May. Read the section
  Quotes

  Previous report: “The latest reading, for May, was 1.4 percent--still up from a year earlier when falling energy prices restrained overall consumer prices.”

  This report: “The price index for personal consumption expenditures increased 1.7 percent over the 12 months ending in December 2017”

• Core inflation is now reported at 1.5 percent in December, down 0.4 percentage point from a year earlier, a larger decline than previously noted. Read the section
  Quotes

  Previous report: “The 12-month measure of inflation that excludes food and energy items (so-called core inflation), which historically has been a better indicator than the headline figure of where overall inflation will be in the future, was also 1.4 percent over the year ending in May; this reading was a bit lower than it had been one year earlier.”

  This report: “The 12-month measure of inflation that excludes food and energy items ... was 1.5 percent in December--0.4 percentage point lower than it had been one year earlier.”

• The report now emphasizes inflation has been persistently below 2 percent and the FOMC will monitor it relative to a symmetric goal, a stronger emphasis than the previous report's expectation of stabilization. Read the section
  Quotes

  Previous report: “the Committee continued to expect that inflation would move up and stabilize around 2 percent over the next couple of years”

  This report: “The FOMC has emphasized that it will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal, as inflation has been running persistently below the 2 percent longer-run objective.”

Labor market

• The unemployment rate is now reported at 4.1 percent in January, down from 4.3 percent in May, and described as 'somewhat below' longer-run estimates. Read the section
  Quotes

  Previous report: “The unemployment rate fell from 4.7 percent in December to 4.3 percent in May--modestly below the median of FOMC participants' estimates of its longer-run normal level.”

  This report: “The unemployment rate declined from 4.3 percent in June to 4.1 percent in January--somewhat below the median of FOMC participants' estimates of its longer-run normal level.”

• The report now notes stronger payroll gains, averaging 182,000 per month since July 2017, compared with 162,000 per month in the first five months of 2017. Read the section
  Quotes

  Previous report: “Over the first five months of 2017, payroll employment increased 162,000 per month, on average, somewhat slower than the average monthly increase for 2016 but still more than enough to absorb new entrants into the labor force.”

  This report: “Payroll employment has posted solid gains, averaging 182,000 per month in the seven months starting in July 2017”

Financial conditions

• The report now says federal fiscal policy will likely provide a moderate boost to GDP growth this year, whereas previously it was described as roughly neutral. Read the section
  Quotes

  Previous report: “Under currently enacted legislation, federal fiscal policy will likely again have a roughly neutral influence on the growth in real GDP this year.”

  This report: “federal fiscal policy will likely provide a moderate boost to GDP growth this year.”

Financial stability

• The report now notes signs of increasing nonbank financial leverage, such as margin credit to hedge funds, which was not mentioned previously. Read the section
  Quotes

  This report: “However, there are signs that nonbank financial leverage has been increasing in some areas--for example, in the provision of margin credit to equity investors such as hedge funds.”

Monetary policy

• The report now describes the December rate increase to 1-1/4 to 1-1/2 percent, replacing the June increase to 1 to 1-1/4 percent. Read the section
  Quotes

  Previous report: “At its most recent meeting in June, the Committee boosted the target range for the federal funds rate to 1 to 1-1/4 percent.”

  This report: “At its meeting in December, the Committee judged that current and prospective economic conditions called for a further increase in the target range for the federal funds rate, to 1-1/4 to 1-1/2 percent.”

• The report now states the FOMC initiated balance sheet reduction in September, whereas previously it only announced plans to do so. Read the section
  Quotes

  Previous report: “the FOMC issued an Addendum to the Policy Normalization Principles and Plans that provides additional details regarding the approach the FOMC intends to follow to reduce the Federal Reserve's holdings of Treasury and agency securities in a gradual and predictable manner.”

  This report: “at its September meeting, the FOMC decided to initiate a program of gradually and predictably reducing the size of its balance sheet.”

Projections

• The report now notes a slight shift in the balance of risks toward strength, with more participants seeing upside growth risks, whereas previously risks were broadly balanced. Read the section
  Quotes

  Previous report: “As in March, most participants judged the risks to their projections of real GDP growth, the unemployment rate, headline inflation, and core inflation as broadly balanced”

  This report: “The balance of risks to the economic outlook shifted slightly in the direction of strength, with two more participants seeing upside risks to growth in real GDP than in September and one more seeing risks to the unemployment rate as weighted to the downside.”

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