Fed Regional Bank Directors ‘Remained Cautious’ on U.S. Economy

Directors at the Federal Reserve’s regional banks last month were wary of risks to the outlook for growth in the U.S. even as the economy strengthened.

Board members of the 12 banks “noted continued improvement in economic activity but remained cautious about the outlook, consistent with their expectations of growth at a moderate pace over coming quarters,” according to minutes released in Washington today that summarize discussions last month and in February.

The minutes covered meetings on Feb. 6, Feb. 27 and March 12 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 March 13 and affirmed a plan to hold interest rates near zero at least through late 2014 to spur growth and reduce unemployment. The minutes of that meeting were released last week. The FOMC next gathers in Washington on April 24-25.

Many of the directors of the Fed’s regional banks, who are mostly bankers and business executives, “pointed to downside risks that included the potential for rising energy prices to reduce consumers’ purchasing power while pushing up inflation temporarily, as well as the still-significant strains in global financial markets.”

Labor Market

The minutes said directors “generally had positive, though uneven, reports on consumer spending” and most directors “noted encouraging signs in labor markets,” while “the elevated unemployment rate remained a concern.”

Recommendations about changing the discount rate, which has been at 0.75 percent since February 2010, were the same as in meetings since December.

Members of the Boston Fed’s board of directors urged a quarter-percentage point discount-rate reduction, to 0.5 percent, while the Kansas City Fed repeated its request for a quarter-point rise. The other 10 banks did not request a change.

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.

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