Two Reserve Bank boards asked for a higher discount rate in mid July. Eight days later there were four
The Fed held the discount rate in July. It is the count of who wanted otherwise that moved.
Minutes released at 2:00 p.m. Eastern on Tuesday cover two meetings of the Board of Governors, on 20 July and on 29 July, at which the Board reviews the rate charged to banks borrowing at the discount window. On both dates the answer was the same: the primary credit rate stays at 3.75 percent. Underneath that, the twelve Reserve Bank boards of directors were moving.
Each Reserve Bank has its own board of directors, and each board votes on what it would like the rate to be. The Board of Governors in Washington then decides. On 9 July, the directors of New York, Richmond, Atlanta, Kansas City and Dallas voted to leave the rate where it was. On 16 July, Boston, Philadelphia, Chicago, St. Louis and San Francisco did the same. Cleveland and Minneapolis, voting on 16 July, asked for 4 percent.
Ten to two. The Board took no action on the two requests.
Kansas City and Dallas changed their minds
By the joint meeting of the Board and the Federal Open Market Committee on 29 July, the arithmetic had changed. New York, Richmond and Atlanta voted on 23 July to keep the rate at 3.75 percent. Cleveland and Minneapolis were still at 4 percent from their 16 July vote. Kansas City and Dallas, which had voted for 3.75 percent on 9 July, voted on 23 July for 4 percent.
That is four boards asking for an increase where there had been two, and two of the four had been on the other side a fortnight earlier.
The Board held the rate anyway. The minutes record that no sentiment was expressed for changing it, and the governors voting were Chairman Warsh, Vice Chair Jefferson, Vice Chair for Supervision Bowman, and Governors Powell, Waller, Cook and Barr. At the same meeting the Committee kept the federal funds target range at 3-1/2 to 3-3/4 percent effective 30 July, and the Board kept interest on reserve balances at 3.65 percent.
Directors are not presidents
There is an overlap here that is easy to over-read, so it is worth setting out what the document does and does not say.
Three of the twelve voting members of the Federal Open Market Committee dissented at the July meeting, each preferring a quarter point rise: Beth Hammack, Neel Kashkari and Lorie Logan. The Federal Reserve lists them as the presidents of, respectively, Cleveland, Minneapolis and Dallas. Three of the four Reserve Banks whose directors asked for 4 percent are those same three, with Kansas City the fourth.
A Reserve Bank board of directors is a separate body from its president. The minutes make no link between the two votes, and they record no reason for any director position. What can be said is narrow and still worth saying: two different counting mechanisms inside the Federal Reserve, polling two different sets of people, both showed more appetite for a higher rate in late July than in June.
What the directors reported
The minutes summarise what directors said about conditions in their districts, and they preserve the hedges.
Overall the directors reported stable economic conditions. Employment levels remained steady across most districts, though several directors noted hiring challenges for certain skilled positions. Most highlighted continuing artificial intelligence investments, particularly those focused on enhancing productivity and efficiency. Many described steady demand, high credit availability and stable credit quality in commercial lending. Several commented on elevated inflation and said consumers were becoming increasingly price conscious, and most cited rising fuel prices and surcharges stemming from global events.
The Board also renewed the two formulas that hang off the primary credit rate. Secondary credit sits 50 basis points above it. Seasonal credit resets every two weeks at the average of the daily effective federal funds rate and the three-month certificate of deposit rate over the previous fourteen days, rounded to the nearest 5 basis points.
