Fed Regional Directors Saw Economic Weakness in May, June

Directors at the Federal Reserve’s regional banks were concerned about the outlook for unemployment and the expansion at meetings in May and June, while anticipating that the economy will grow moderately.

“Directors noted relative weakness in recent economic data but generally expected moderate economic growth to continue over the coming quarters,” according to minutes released today in Washington summarizing the discussions.

Board members of the 12 banks said “in labor markets, the pace of gains in employment had slowed, and the elevated unemployment rate remained a source of concern,” the minutes said.

The minutes covered meetings on May 21, June 4 and June 18 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 Fed panel, the Federal Open Market Committee, met June 19-20 and announced a plan to extend its Operation Twist program through the end of the year. The minutes of the FOMC meeting in June were released last week.

Directors of the Fed’s regional banks, who are mostly bankers and business executives, “cited ongoing downside risks, including still-significant strains in global financial markets and domestic fiscal uncertainty, as resulting in heightened caution regarding hiring and investment.”

Same Recommendations

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 seven Washington-based governors. They review requests about every two weeks.

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