Back in April, when the world was still reeling from the China devaluation inflicted market slump, the Fed’s discount rate minutes for the months of March/April showed that 4 regional Feds wanted a 25 bps rate hike, up from just two – the Richmond Fed and Kansas City – in the Feb/March meeting. One month ago the Fed released its May/June Discount Rate Minutes which revealed that both the St. Louis and Boston Feds joined four other regional Feds, Cleveland, Richmond, Kansas City and San Francisco, in seeking a quarter point increase in Fed discount rate to 1.25% prior to the June 14-15 FOMC meeting.
Then moments ago the Fed released its latest July 25 Discount Rate Minutes which revealed that two more regional Feds, Dallas and Philadelphia joined the six previously noted, in seeking a quarter point increase in Fed discount rate to 1.25 percent prior to the July meeting.
This means that as of a month ago, two thirds of all regional Feds were urging Yellen to hike the discount rate; they were the following: Boston, Cleveland, Dallas, Kansas City, Philadelphia, Richmond, San Francisco and St. Louis. Those who voted to keep discount rate at 1% cited argument that outlook and below-target inflation supported keeping current accommodation in place; banks were Atlanta, Chicago, Minneapolis, and especially the New York. Clearly they dominated the discussion.
Obviously, there was no rate hike, as the Fed chose to maintain its primary credit rate at 1%.
The regional directors who supported a rate hike increase did so in light of a “strengthening economy and expectations that inflation would move to 2% target.” They also saw saw the “economy continuing to expand at moderate pace, yet reports varied somewhat across sectors and districts.” Other factors listed included:
- Several cited improvements in housing, on top of steady or increasing levels of consumer spending
- Many said initial impact of Brexit vote and global financial developments on U.S. economy was limited; even so, some saw increased uncertainty about U.S. outlook
- Several mentioned continued weakness in export-related industriesd
While labor mkt indicators improved, some directors saw variability in recent job gains; increasing tightness seen for certain positions, such as those in construction
From the minutes:
Subject to review and determination by the Board of Governors, the directors of the Federal Reserve Banks of New York and Minneapolis had voted on July 14, 2016, and the directors of the Federal Reserve Banks of Atlanta and Chicago had voted on July 21, to reestablish the existing rate for discounts and advances (1 percent) under the primary credit program (primary credit rate). The directors of the Federal Reserve Banks of Boston, Cleveland, Richmond, and San Francisco had voted on July 14, and the directors of the Federal Reserve Banks of Philadelphia, St. Louis, Kansas City, and Dallas had voted on July 21, to establish a rate of 1-1/4 percent (an increase from 1 percent). At its meeting on June 13, the Board had taken no action on requests by the Boston, Cleveland, Richmond, St. Louis, Kansas City, and San Francisco Reserve Banks to increase the primary credit rate.
Federal Reserve Bank directors generally indicated that economic activity had continued to expand at a moderate pace, though their reports varied somewhat across different sectors and Districts. Several directors cited improvements in the housing sector, as well as steady or increasing levels of consumer spending. Many directors stated that the initial impact of the recent U.K. referendum and the associated global financial developments on U.S. economic conditions had been limited. However, some directors noted increased uncertainty about the U.S. economic outlook stemming from these developments. Several directors also noted ongoing weakness in export-related industries. Labor market indicators were improving overall, but some directors pointed to variability in recent job gains. Many directors reported increasing tightness in the labor market for certain skilled positions, particularly in the construction sector. Inflation remained below the Federal Reserve’s 2 percent objective.
Against this backdrop, some Federal Reserve Bank directors recommended that the primary credit rate be maintained at its current level of 1 percent. In general, they judged that the economic outlook and below-target inflation supported maintaining the current accommodative stance of monetary policy. Other Federal Reserve Bank directors recommended increasing the primary credit rate to 1-1/4 percent, in light of actual and expected strengthening in economic activity and their expectations for inflation to gradually move toward the 2 percent objective.
Today, Board members considered the primary credit rate and discussed, on a preliminary basis, their individual assessments of the appropriate rate and its communication, which would be discussed at the meeting of the Federal Open Market Committee this week. No sentiment was expressed for changing the primary credit rate before the Committee’s meeting, and the existing rate was maintained. Thereafter, a discussion of economic and financial developments and issues related to possible policy actions took place.
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So will 8 “dissenting” Feds be sufficient to push Yellen to move with a rate hike in September? We’re getting closer, although probably not without Bill Dudley’s New York Fed joining the chorus. Recall that on November 24, one month before the Fed did hike rates by 25 bps, 9 regional Feds requested a Discount Rate hike, or one more than currently. With 8 of 12 regional Feds on the same page as of this moment, it suddenly appears that a “dovish” Yellen may be having a small mutiny on her hands if she again ignores the majority.
via http://ift.tt/2bfAAbg Tyler Durden