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Strategies & Market Trends : Booms, Busts, and Recoveries

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From: Haim R. Branisteanu	2/23/2010 2:12:14 PM
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Fed Discount Minutes: St Louis, Kansas City Favored Rate Hike By Luca Di Leo and Jeff Bater OF DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--U.S. Federal Reserve regional banks split in January on what to do with the discount rate, with two calling for an increase and 10 in favor of keeping the rate charged to banks on emergency loans unchanged. In the minutes of a discount rate meeting Jan. 25, the central bank said directors of the Federal Reserve Banks of St. Louis and Kansas City had voted on Jan. 14 to raise the discount rate to 0.75% from 0.5%. Last week, the Fed did indeed raise the rate by that quarter-point, emphasizing the move was just a normalization of emergency lending programs and shouldn't be taken as a sign of broader credit tightening. At their latest policy-setting meeting at the end of January, Fed officials kept the central bank's key short-term interest rate close to zero in the face of high unemployment and low inflation. They repeated that the Fed funds target rate is expected to stay at a record low for an "extended period." The discount-rate minutes released Tuesday showed the remaining 10 regional Fed banks favored keeping the rate for direct loans to commercial and investment banks unchanged at 0.5%. The minutes showed central bank officials saw positive developments, although overall economic activity remained weak, with substantial slack in resource use. "Directors also expected that ongoing constraints in the availability of credit to smaller businesses and households, a higher household saving rate, and weak conditions in labor markets were likely to restrain household income and outlays for a time," the minutes said. Fed Chairman Ben Bernanke is expected on Wednesday to say the U.S. economy still needs record-low interest rates for several months at least due to uncertainty over the recovery's strength. In his semi-annual monetary policy testimony to Congress, the Fed chief will likely stress to lawmakers that last week's increase in the discount rate doesn't mean that wider borrowing costs for consumers and companies will also rise soon. -By Luca Di Leo, Dow Jones Newswires; 202 862 6682; luca.dileo@dowjones.com

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