Fed Regional Bank Directors Saw Recovery ‘Progressing’ in March

Directors at Federal Reserve regional banks saw the economy improving even as energy prices rose and governments at all levels cut spending, according to minutes of Board of Governors’ meetings in February and March.

“Federal Reserve Bank directors generally viewed recent information as showing the economic recovery was progressing,” the minutes said, adding that directors saw “downside risks posed by rising energy and commodity prices and by increased fiscal stringency.”

The minutes show that most directors at the Fed’s 12 regional banks shared the view of Fed Chairman Ben S. Bernanke and the rate-setting Federal Open Market Committee that record monetary stimulus remained appropriate and that inflationary pressures will be “transitory.” The central bank released the minutes today in Washington.

“Most directors recommended that the current accommodative stance of monetary policy be maintained,” according to the minutes of the March 14 meeting to discuss the Fed’s discount rate, which it charges on emergency loans to banks. Regional bank directors pass their recommendations to the board of governors about changing the rate, which has been at 0.75 percent since Feb. 2010. The recommendations of the regional banks have not changed since June.

“While rising commodity prices can exert upward pressure on inflation, most directors expected inflation to remain low over the medium term,” the minutes said. The comments indicate that regional bank directors agreed with the FOMC March 15 statement that while energy prices are “putting upward pressure on inflation, the committee expects these effects to be transitory.”

Unemployment Rate Dropped

The Labor Department said earlier this month that the unemployment rate dropped to 8.8 percent in March, the lowest level in two years, as 216,000 jobs were created.

On Friday, the Labor Department will report that the consumer price index rose 2.6 percent in March from a year earlier, according to the median estimate of a Bloomberg survey of economists. Excluding food and energy, as the Fed prefers, prices will rise 1.2 percent, according to the survey.

Fed directors “noted a number of positive indicators, including further gains in consumer spending, a modest improvement in labor market conditions, and continued advances in manufacturing activity,” 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.”

‘No Sentiment’

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 April 6, banks were borrowing $23 million in primary credit from the Fed discount window. The 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.

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 six Washington-based governors. Central bank governors review requests about every two weeks. The FOMC next meets in Washington on April 26-27.

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net