Three Fed Banks Lobbied To Raise Rates in July

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One-quarter of the Federal Reserve’s regional district banks lobbied to raise the discount rate in July, signaling rising pressure to increase borrowing costs to banks even as economic growth slows.

Citing a rising danger of inflation, the boards in Chicago, Dallas, and Kansas City sought a quarter-point increase in the discount rate from 2.25%, according to minutes of officials’ discussions prior to the August 5 policy meeting that were released yesterday in Washington. The other nine Fed district banks asked for no change, in line with the decision to keep the discount rate and benchmark federal funds rate unchanged.

The minutes indicate broader support for lifting interest rates than revealed by the tally at last month’s Federal Open Market Committee meeting, where just one of the 11 members voted for an increase. The division comes as officials debate the likely impact of the retreat in commodities on consumer prices, which surged the most since 1991 in the year to July.

“It sounds like there’s a streak of conservatism emerging at the Fed,” the chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, Chris Rupkey, said. Minutes from the August 5 FOMC meeting, released last week, showed that officials agreed their next move would be to increase rates, without reaching a conclusion on the timing of such a decision.

Directors seeking higher rates “cited indications that higher input costs were being passed through to product prices and that inflation expectations had risen,” the minutes said.


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