The Fed has released minutes of its recent discount rate meeting. In summary, the fed says most banks are to keep rates steady, lower consumer spending diminished the economy, and that tight credit is adding pressure on the economy. Now only one bank - Kansas City - wants a hike in the discount rate vs. 3 earlier in the year.
Idiot clause: The discount rate is the rate at which the federal reserve lends money to institutions. The discount rate is usually higher than the federal funds rate.
WASHINGTON (Dow Jones)--Dissent diminished last month among Federal Reserve regional banks for a discount rate hike amid growing risks to the economy.
The Fed on Tuesday released minutes of its discount rate meetings that were held in August and September before a Sept. 16 decision by the Federal Open Market Committee to keep its target for the federal funds rate at 2.00%.
The FOMC had lowered the fed funds rate from 5.25% over nine months to help the economy deal with the credit crunch and housing slump; the last rate cut prior to the September meeting was in April. The Fed at the Sept. 16 meeting also took no action on the discount rate, leaving it at 2.25%.
Last week, however, the Fed slashed the fed funds rate in a rare intermeeting cut. The FOMC voted unanimously to cut the rate target by 50 basis points to 1.5% against the backdrop of a tumbling stock market.
Tuesday's discount rate minutes showed that in early September, 11 of 12 district banks sought to maintain the existing, 2.25% discount rate. The 12th bank, Kansas City, sought an increase in the rate to 2.5% over inflation concerns.
"Some directors concluded that declining real consumer spending had recently diminished the prospects for economic growth, while others pointed to increased weakness in the labor market and lower growth prospects among international trading partners as suggesting downside risks to growth.
"Several directors also noted that tight credit conditions and the ongoing housing contraction served to intensify downside risks," the minutes said.
Earlier, in late August, two banks supported a hike in the discount rate, to 2.5% - Kansas City and Dallas.
The last release of discount rate meetings came Sept. 2. Those meetings had been held in July and early August before an Aug. 5 decision by the FOMC to keep its target for the federal funds rate at 2.00%; the Fed at that time also took no action on the discount rate, leaving it at 2.25%. Those minutes had showed there were nine of the 12 district banks seeking to maintain the existing, 2.25% discount rate. Three of the 12 banks - Kansas City, Chicago, and Dallas - called for an increase of 25 basis points, to 2.5%.