Fed Regional Directors Saw ‘Moderate’ Growth Amid Fiscal Risks

Directors at the Federal Reserve’s district banks said last month the U.S. economy was expanding at a “moderate” pace, though fiscal “uncertainties” and higher interest rates remained risks to the outlook.

“Directors viewed recent readings on manufacturing activity and the housing and auto sectors as generally positive,” according to minutes released today in Washington summarizing the discussions. “Directors continued to see downside risks to the outlook stemming from ongoing domestic fiscal constraints and uncertainties, recent increases in long-term interest rates, and geopolitical concerns.”

Each of the 12 regional Federal Reserve Banks has a nine-member board of directors that provides anecdotal reports to the Fed’s Washington-based Board of Governors and makes recommendations on whether to raise or lower the discount rate that the central bank charges on emergency loans.

A separate set of minutes, from the Federal Open Market Committee’s Sept. 17-18 monetary policy meeting, was released last week.

The Board of Governors made no change to the discount rate, which has been at 0.75 percent since February 2010. Directors at the Philadelphia, Dallas and Kansas City district banks requested a quarter percentage-point increase in the rate to 1 percent, as they had in previous meetings. The Minneapolis Fed directors, who had previously supported leaving the rate unchanged, requested the rate be lowered to 0.5 percent. The other eight reserve banks voted to keep the rate unchanged.

“Those directors favoring a reduction in the primary credit rate believed that a looser setting would help to foster the Committee’s macroeconomic objectives of maximum employment and price stability,” according to the records, which pertained to meetings on Aug. 12, Aug. 26 and Sept. 16.

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