Eight Fed District Bank Boards Backed Discount-Rate Hike in July

(Bloomberg) -- The boards of directors at eight of the 12 regional Federal Reserve banks sought last month to increase the rate on direct loans from the Fed to 1.25 percent from 1 percent, according to details released by the U.S. central bank Tuesday.

The votes mark the first time since policy makers raised the benchmark federal funds rate in December that a majority of the Fed’s regional boards backed a discount-rate increase. The votes can be a signal of whether a bank’s president favors a change in the main policy rate.

“Federal Reserve Bank directors generally indicated that economic activity had continued to expand at a moderate pace,” the July discount-rate minutes showed. “Several directors cited improvements in the housing sector, as well as steady or increasing levels of consumer spending.”

Directors in Dallas and Philadelphia voted for an increase, joining those from Boston, Cleveland, Kansas City, Richmond, San Francisco and St. Louis -- who had also favored a rate increase when they met in June. Presidents from those banks backing a discount-rate move included all four who currently hold rotating votes in the policy-making Federal Open Market Committee.

Directors in New York, Minneapolis, Chicago and Atlanta voted to keep the rate unchanged. Those officials “judged that the economic outlook and below-target inflation supported maintaining the current accommodative stance of monetary policy,” according to minutes.

New York’s William Dudley is the only voting president from that group. He holds a permanent vote on the FOMC.

The discount rate is the interest rate charged to banks and depository institutions for loans received from Fed’s lending facility, and is separate from federal funds rate, the central bank’s primary policy tool.

The Board of Governors in Washington must approve any change in the discount rate. They didn’t approve any change when they met last month and have left it at 1 percent since December.