–Cautious About Outlook; Expect Modest Growth Going Forward

By Brai Odion-Esene

WASHINGTON (MNI) – The Kansas City and Dallas Federal Reserve banks
remain the only two of the 12 requesting a discount rate increase of 25
basis points to 1.0%, according to the minutes of the Federal Reserve
Board’s latest discount rate meetings, released Tuesday.

The minutes from the discount rate meetings November 22 and
December 13 show that directors of the Kansas City and Dallas Fed Banks
requested an increase in the discount rate December 9, but the existing
rate was maintained.

The board also turned down a similar request by those same banks
November 10 and November 18.

The minutes said the Kansas City and Dallas bank directors proposed
the move as another step toward restoring a pre-crisis discount rate
structure, which would lead to a 75 bps spread between the primary
credit rate and the upper end of the Federal Open Market Committee’s
target range for the federal funds rate.

“These directors favored a move toward normalization of the primary
credit rate in light of the monetary stimulus already in place,” it
said.

However, although Board members considered the primary credit rate
and discussed — “on a preliminary basis” — their individual
assessments of the appropriate rate and its communication, no sentiment
was expressed for changing the primary credit rate before the FOMC’s
December 14 meeting, and the existing rate was maintained.

According to the minutes, Federal Reserve Bank directors noted
positive developments that indicated the recovery was continuing, “but
given ongoing uncertainties, directors remained cautious about the
outlook and expected growth to be modest going forward.”

Directors reported somewhat stronger-than-anticipated consumer
spending, with prospects for holiday sales brighter than in recent
years. Some directors said manufacturing activity had continued to
expand.

Despite this, directors noted continued weakness in certain sectors
such as housing, which remained depressed.

On the slow progress being seen in the labor market, several
directors again described unemployment as remaining “unacceptably high,
although some directors also noted that initial claims for unemployment
had trended downward in recent months.”

They commented that uncertainty about several matters, including
the U.S. government’s fiscal and regulatory policies, the fiscal
condition of state and local governments, and financial developments
abroad, continued to weigh on hiring and capital spending decisions.

Increases in certain commodity prices, such as those for metals and
agricultural products, were also cited by directors, but they generally
expected inflation to remain quite low.

“Against this backdrop, most directors recommended that the current
accommodative stance of monetary policy be maintained,” the minutes
said.

** Market News International Washington Bureau: 202-371-2121 **

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