July 2024 Monetary Policy Report

The report now describes inflation easing only modestly this year, with firmer first-quarter core prices and higher energy costs, while labor market tightness has eased. It notes slower first-quarter GDP growth, somewhat restrictive financial conditions, and a higher expected federal funds rate path. The FOMC slowed balance sheet runoff and added a caution against easing too soon.

Inflation

• The report now describes inflation as having shown only modest further progress this year, with the 12-month PCE rate little changed since late last year, whereas the previous report emphasized notable slowing. Read the section
  Quotes

  Previous report: “The price index for personal consumption expenditures (PCE) rose 2.4 percent over the 12 months ending in January, down from a peak of 7.1 percent in 2022, though still above the Federal Open Market Committee's (FOMC) longer-run objective of 2 percent.”

  This report: “Inflation stepped down markedly last year and has shown modest further progress so far this year. Inflation remains elevated, though, and is still above the Federal Open Market Committee's (FOMC) longer-run objective of 2 percent.”  ·  “The price index for personal consumption expenditures (PCE) rose 2.6 percent over the 12 months ending in May, down from the 4.0 percent pace a year ago but little changed since the end of last year.”

• The report now notes that core PCE inflation firmed in the first quarter before easing in April and May, a shift from the previous report's description of steady easing over the past six months. Read the section
  Quotes

  Previous report: “The core PCE price index—which excludes volatile food and energy prices—rose 2.8 percent over the 12 months ending in January. More recently, core PCE prices increased at an annual rate of 2.5 percent over the six months ending in January.”

  This report: “After having slowed markedly in the second half of 2023, monthly core PCE price inflation—which excludes food and energy prices and is generally considered a better guide to the direction of future inflation—firmed in the first quarter of this year and then eased somewhat in April and May.”  ·  “the 12-month change in core PCE prices declined from the 4.7 percent pace in May of last year to 2.9 percent in December and moved down further this year, to 2.6 percent in May”

Labor market

• The report now puts the unemployment rate at 4.0 percent in May, up from 3.7 percent in January, and notes it is modestly higher than in 2019. Read the section
  Quotes

  Previous report: “at 3.7 percent in January, it is only slightly above its pre-pandemic level and remains very low by historical standards”

  This report: “The unemployment rate has edged up since the middle of 2023 but was still at a historically low level of 4.0 percent in May.”  ·  “The unemployment rate has continued to edge up this year and reached 4.0 percent in May, modestly higher than in 2019.”

Economic activity

• The report now says real GDP growth was modest in the first quarter, in contrast to the previous report's strong growth, and cites drags from net exports and inventory investment. Read the section
  Quotes

  Previous report: “Real gross domestic product (GDP) growth has also been strong, supported by solid increases in consumer spending.”  ·  “Real GDP increased 3.1 percent last year, notably faster than in 2022 despite tighter financial conditions.”

  This report: “Real gross domestic product (GDP) growth was modest in the first quarter, while growth in private domestic demand remained robust, supported by slower but still-solid increases in consumer spending, moderate growth in capital spending, and a sharp pickup in residential investment.”  ·  “Much of the slowdown was due to sizable drags in the volatile categories of net exports and inventory investment; growth in private domestic final purchases—which includes consumer spending, business fixed investment, and residential investment—also moved a little lower in the first quarter but remained solid.”

Financial conditions

• The report now explicitly states financial conditions appear somewhat restrictive on balance, a new assessment not present before. Read the section
  Quotes

  This report: “Financial conditions appear somewhat restrictive on balance.”

Financial stability

• The report now describes valuations as high relative to fundamentals across major asset classes, a stronger statement than the earlier modest increase in valuation pressures. Read the section
  Quotes

  Previous report: “Valuation pressures increased modestly, with equity markets close to all-time highs in real terms and real estate prices still high relative to fundamentals.”

  This report: “Valuations increased to levels that were high relative to fundamentals across major asset classes, with equity prices growing faster than expected earnings and residential property prices remaining high relative to market rents.”

Monetary policy

• The median federal funds rate projection for 2024 has been raised from 4.625 percent to 5.1 percent, indicating a higher expected path. Read the section
  Quotes

  Previous report: “4.625: 2023: 6”

  This report: “Median: 2024: 5.1”

• The report now adds that reducing policy restraint too soon or too much could reverse inflation progress, a caution not mentioned in the previous report. Read the section
  Quotes

  This report: “Reducing policy restraint too soon or too much could result in a reversal of the progress on inflation. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

• The report now notes the FOMC slowed the pace of balance sheet decline in June, whereas the previous report only said reductions were continuing. Read the section
  Quotes

  Previous report: “The Federal Reserve has also continued to reduce its holdings of Treasury and agency mortgage-backed securities.”  ·  “the FOMC intends to slow and then stop reductions in its securities holdings when reserve balances are somewhat above the level that the FOMC judges to be consistent with ample reserves.”

  This report: “the FOMC slowed the pace of decline of its securities holdings at the beginning of June and intends to stop reductions when reserve balances are somewhat above the level that the Committee judges to be consistent with ample reserves.”

• The report now describes a substantial rise in the market-implied federal funds rate path since the beginning of the year, with expected end-2024 and end-2025 rates higher than previously projected. Read the section
  Quotes

  Previous report: “On net, the market-implied policy rate path rose notably for year-end 2024, and somewhat more modestly for year-end 2025 and 2026.”  ·  “Financial market prices imply that the federal funds rate will decline from current levels following the March 2024 FOMC meeting, reaching about 4.6 percent and about 3.7 percent by year-end 2024 and year-end 2025, respectively.”

  This report: “Since the beginning of the year, on net, the market-implied federal funds rate path rose substantially (figure 33).”  ·  “Financial market prices currently suggest that investors expect the federal funds rate to decline to about 4.9 percent and 4.0 percent by year-ends 2024 and 2025, respectively.”

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