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Fed Regional Bank Directors Voiced Optimism Amid Fiscal Deadlock

Jan. 8 (Bloomberg) -- Directors at the Federal Reserve’s regional banks last month expected the U.S. economic expansion to continue even as manufacturing slowed and lawmakers debated how to resolve a deadlock over federal taxation and spending.

“Directors remained cautiously optimistic about the prospects for economic growth,” according to minutes released today in Washington summarizing the discussions. “Some directors noted continued, though uneven, improvements in consumer spending, especially for automobiles.”

The minutes summarize discussions among board members at the 12 regional reserve banks as they consider whether the Fed should alter the discount rate that it charges on emergency lending. The discussions were considered by the Fed’s Washington-based Board of Governors at meetings on Nov. 19 and Dec. 10. The board made no change to the discount rate.

The minutes said, “aside from the automobile sector, manufacturing was generally described as showing no noticeable signs of increased activity,” and the directors expressed “increased concern about the potential effects on the economy if pending fiscal issues were not addressed.”

Recommendations about changing the discount rate, which has been at 0.75 percent since February 2010, were the same as those at earlier meetings. The Boston Fed’s directors urged a quarter-percentage point reduction, to 0.5 percent, while the Kansas City Fed repeated its request for a quarter-point rise to 1 percent. The other 10 banks didn’t request a change.

Congress reached an agreement on Jan. 1 in which it reduced the amount of tax increases and postponed for two months a package of spending cuts.

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

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

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