WASHINGTON (MNI) – The directors at Richard Fisher’s Dallas Federal
Reserve Bank and Thomas Hoenig’s Kansas City Bank voted three more times
to realign the discount rate and federal funds rate to pre-crisis levels
— and three more times were ignored by the Board of Governors, the
discount rate minutes showed Tuesday.

The exercise did little other than to reinforce the impression
Hoenig is not on the same wavelength as the Board, something he has made
clear in a higher profile way with steady dissents from FOMC decisions.
He has taken exception to the “extended” language in the rate
announcement, and recently, to maintaining the large size of the Fed’s
balance sheet through reinvestment of principal payments of portfolio
securities.

Fisher has limited his dissents from mainstream FOMC opinions to
personal opinions expressed in interviews and speeches, as he did
earlier in the day.

The Board, composed at the time of Chairman Ben Bernanke and
Governors Kevin Warsh, Elizabeth Duke and Daniel Tarullo, voted August
23 — along with then Vice Chairman Donald Kohn — and again Sept. 7 and
Sept. 20 without the retired Kohn — to side with the majority of
regional district Banks and keep the discount rate at 0.75%.

Raising the discount rate by a quarter point, as the directors of
the Kansas City and Dallas Banks preferred, would reestablish the 75
basis point spread between the discount rate, otherwise known as the
primary credit rate, and the upper end of the Federal Open Market
Committee’s target range for the federal funds rate.

The fed funds rate and the discount rate are no longer the entirety
of central bank monetary policy directives, now supplemented by
quantitative easing methodology which may continue to evolve at the Nov.
2-3 FOMC meeting and perhaps persist for many years.

The discount rate minutes elaborated on the discussion by regional
bank directors of moving the primary credit rate, even though the
conclusion was the same as previous considerations of restoring the
pre-crisis spread with the fed funds rate, that among Board members, “no
sentiment was expressed” for making a change.

“Federal Reserve Bank directors,” the minutes said, “noted recent
economic indicators suggesting a slow and uneven pace of recovery in
output and employment.” It added, “Some directors said that
manufacturing activity and consumer spending had improved somewhat, but
directors generally pointed to signs of softness in economic activity.”

“The housing sector continued to be depressed, and labor markets
remained weak,” the minutes continued.

“Several directors noted that uncertainty about the strength of the
economy as well as fiscal and regulatory policies was weighing on
capital spending and hiring. A number of directors reported that the
pace of the recovery had slowed in recent months. With inflation subdued
and inflation expectations stable, most directors recommended that the
current accommodative stance of monetary policy be maintained,” the
minutes said.

“As another step toward restoring a pre-crisis discount rate
structure, some directors supported increasing the primary credit rate
by 25 basis points (to 1 percent) at this time,” the minutes said,
adding that, “It was emphasized that an increase in this spread would
not represent a change in monetary policy, but rather a move toward
normalization of the primary credit rate.”

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

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