Directors at the Federal Reserve’s 12 regional banks saw the U.S. economic recovery “progressing” while noting risks from inflation and slower growth, according to minutes of Board of Governors’ meetings in April.
“Labor market conditions had continued to improve modestly,” they said, noting that business and consumer spending, manufacturing and agriculture were all increasing. “Although the economic recovery was progressing, they were cautious about the economic outlook,” according to minutes of the board’s April 25 meeting in Washington. “A number of directors saw upside risks to the inflation outlook.”
The minutes released today show that most regional bank directors affirmed the view of Fed Chairman Ben S. Bernanke and the rate-setting Open Market Committee that record monetary stimulus remains appropriate to accelerate job creation and fuel economic growth.
“Most directors recommended that the current accommodative stance of monetary policy be maintained,” said the minutes of the meeting to discuss the Fed’s discount rate, which it charges on emergency loans to banks. Recommendations about changing the rate, which has been at 0.75 percent since Feb. 2010, were the same as in previous meetings, with 10 banks preferring no change.
Some directors expressed caution due to “considerable slack remaining in the economy and ongoing downside risks,” including rising commodity prices and reductions in government spending, the minutes said.
Fed banks in Dallas and Kansas City last month repeated calls for an increase in the discount rate by a quarter-point to 1 percent, a move that would be a step toward “a pre-crisis discount rate structure.”
None of the Fed’s 12 banks has changed its recommendation on the discount rate since June. The Fed’s Washington-based Board of Governors expressed “no sentiment” for changing the rate and kept it at 0.75 percent last month.
As of May 18, banks were borrowing $5 million in primary credit from the Fed discount window. The discount rate is currently 50 basis points above the Fed funds rate, which has been kept at zero to 0.25 percent since December 2008.
The central bank raised the discount rate in February 2010, a move it described at the time as a “normalization” of lending terms and not a tightening of monetary policy. Prior to August 2007, the Fed kept the rate, also known as the primary credit rate, 1 percentage point above the target for the benchmark federal funds rate.
A separate set of minutes for the Federal Open Market Committee’s discussion about monetary policy were released last week. The FOMC next meets in Washington on June 21-22.
The directors endorsed the FOMC’s view that rising commodity prices are likely to have a “transitory” effect on inflation, saying that such an increase was “generally not expected to be sustained.”
Discount-rate changes are requested by boards of directors at the 12 regional Fed banks. The requests are subject to final review and determination by the Fed Board, which consists of the bank’s five Washington-based governors. Central bank governors review requests about every two weeks.
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