Directors at the Federal Reserve’s regional banks last month saw “moderate” growth in 2012 even as the U.S. economy showed signs of strengthening.
Board members of the 12 banks “noted that recent economic data had improved somewhat, but they were cautious about the outlook,” according to minutes released in Washington today that summarize discussions last month.
The minutes covered a Jan. 23 meeting by the Fed’s Board of Governors to discuss the discount rate, which the central bank charges on emergency loans to banks. The Fed kept the rate unchanged at 0.75 percent.
A different panel within the Fed, the policy-setting Federal Open Market Committee, met Jan. 24-25 to adopt a plan to hold interest rates near zero at least through late 2014 to spur growth and reduce unemployment, extending a previous date of mid-2013. The minutes of that meeting were released last week. The FOMC next gathers in Washington on March 13.
Many of the directors of the Fed’s regional banks, who are mostly bankers and business executives, “cited the downside risks posed by ongoing uncertainty about global financial markets and U.S. regulatory and fiscal policies,” the minutes showed.
“Although conditions in labor markets had shown some signs of improvement, directors remained concerned about the elevated rate of unemployment,” the minutes said.
Changing Discount Rate
Recommendations about changing the discount rate, which has been at 0.75 percent since February 2010, were the same as in meetings in December.
Members of the Boston Fed’s board of directors in December urged a quarter-percentage point discount-rate reduction, to 0.5 percent, “as a technical adjustment to better align the rate with the recently reduced” cost on the dollar swaps with other central banks.
The Fed’s November decision to lower the interest rate on the swap lines by a half-point made it cheaper for banks abroad to borrow dollars than U.S. institutions could do at home. Ten regional Fed banks sought no change in the discount rate, while the Kansas City Fed repeated its request for a quarter-point rise.
As of Feb. 15, no banks were borrowing from the Fed’s discount window.
Under the swap lines, the Fed lends money to counterparts, including the European Central Bank, which then make dollar loans to banks in their jurisdiction. Since the Fed and other central banks on Nov. 30 announced the interest-rate cut in a coordinated move, Fed swap-line loans have surged to $109.1 billion from $2.4 billion.
Each of the Fed’s 12 regional banks has a nine-member board of directors that requests discount-rate changes. The requests are subject to final review and determination by the Fed Board, which consists of the central bank’s five Washington-based governors. They review requests about every two weeks.