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Fed Banks Wanted Discount Rate Held Steady

All 12 regional Federal Reserve banks asked the U.S. central bank's board to hold the cost of emergency loans steady in July and the first week of August, with most bank directors seeing little threat from tightening credit conditions.

Minutes of the Washington-based Federal Reserve Board, which must approve changes to the discount rate, for meetings on July 9, July 23 and Aug. 6 show regional bank directors generally expected the U.S. economy to expand moderately, underpinned by robust global economic conditions.

The minutes, released Tuesday, contain no discussion of deliberations ahead of an emergency discount rate cut on Aug. 17 to help ease a credit crunch that had thrown financial markets into turmoil.

Minutes of the deliberations on that 50 basis-point cut to 5.75 percent are expected to be released on Oct. 9 along with minutes from the next meeting of the Fed's policy-setting Federal Open Market Committee, scheduled for Sept. 18.

The Fed Board regularly gathers between FOMC meetings consider discount rate requests from the regional Fed banks. The night before the Aug. 17 discount rate cut, the board considered requests from the New York and San Francisco Fed banks to reduce the rate.

The Aug. 6 board meeting preceded by one day the last meeting of the FOMC, which held the benchmark federal funds rate steady at 5.25 percent. Since then, the FOMC said downside growth risks had "increased appreciably" and it stood ready to act as needed to shield the economy from disruptions in financial markets.

The minutes of the Aug. 6 board meeting said regional Fed bank directors "noted that the U.S. housing market continued to pose a downside risk to U.S. economic growth."

"Several directors reported somewhat less accommodative financial conditions for some borrowers. However, the economy overall was viewed as relatively healthy," the minutes said.

The directors noted that inflation had continued to moderate, but said its underlying trend remained unclear, while labor markets remained tight.

"For now, directors preferred to maintain the current stance of monetary policy and to continue to evaluate the outlook for risks to both economic growth and inflation in light of incoming data.

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