Regional Feds split over steep rate cut need: Fed
Tue Feb 26, 2008 4:25pm EST
WASHINGTON (Reuters) - Two regional Federal Reserve branches opposed a half-percentage-point cut in the discount rate at the end of last month but nine others, fearing mounting risks to growth, backed the move, the Fed said on Tuesday.
"Federal Reserve Bank directors in favor of a 50 basis-point reduction ... generally agreed that continued deterioration in financial markets and weakened economic conditions in housing and labor markets had considerably worsened the economic outlook," Fed Board discount minutes showed.
The Fed lowered the discount rate to 3.5 percent and the overnight fed funds target rate to 3 percent on January 30. This move followed an emergency 75 basis-point cut announced on January 22 to forestall widening global financial turmoil.
One hundred basis points equals one percentage point.
The minutes showed a striking split among the 12 regional Fed branches on the need for aggressive policy easing in the weeks before the surprise rate cut, with some favoring a more modest easing and four wanting no cut at all.
The Federal Reserve banks of St Louis, Atlanta, Kansas City and San Francisco had voted on January 10 to maintain the discount rate at the then prevailing rate of 4.75 percent.
One week later the mood had soured and Fed directors at Chicago and Minneapolis voted for a 75 basis-point cut in the discount rate to 4 percent, while New York and Philadelphia favored lowering rates to 4.25 percent.
By the end of the month a clear majority of bank directors had stepped into the dovish camp in support of muscular action to offset the worsening outlook for U.S. growth.
"Directors concluded that a more accommodative stance for monetary policy in the near term would provide additional insurance against a more protracted slowdown in economic activity,' the discount minutes showed.
On the other hand, there was opposition from Dallas and Richmond, which remained concerned about the implications for inflation in the future.
"Some directors noted, however, that the duration of such an accommodative stance should be considered carefully in view of the continuing upside risks to inflation," the Fed said.
Dallas Fed President Richard Fisher voted against the 50 basis-point fed funds cut on January 30 in favor of leaving rates unchanged. Richmond Fed President Jeffrey Lacker is also a noted hawk, who warned against inflation earlier this month. |
