Nine Fed Banks Called for Discount Rate Hike, Minutes Show

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Janet Yellen Speaks At Monetary Policy Implementation Conference
Andrew Harrer/Bloomberg via Getty Images Federal Reserve Chair Janet Yellen
By Lindsay Dunsmuir

WASHINGTON -- The number of regional Federal Reserve banks pushing for a hike in what commercial banks are charged for emergency loans rose to nine in October, a sign the U.S. central bank may be close to tightening monetary policy, minutes from its discount rate meeting showed Tuesday.

Eight Fed banks had voted to raise the discount rate at the prior meeting in September, a jump from five in July and August.

Ahead of the central bank's Oct. 27-28 policy meeting, directors of the Boston Fed joined their counterparts in St. Louis, Atlanta, San Francisco, Cleveland, Dallas, Philadelphia, Kansas City and Richmond in asking the Fed's board to increase the discount rate to 1 percent from 0.75 percent, according to the minutes.

The nine regional banks that requested a hike want to normalize the spread between the discount rate governing Fed lending to banks and the overnight federal funds rate, which is the central bank's primary economic lever.

U.S. interest rate futures Tuesday suggested that traders saw a 74 percent chance of the central bank raising its benchmark interest rate next month for the first time in almost a decade, according to CME Group's FedWatch.

The Fed board opted to hold the discount rate steady last month, a decision that was backed by two other regional Fed banks. The Minneapolis Fed again voted to cut the rate to 0.5 percent.

Minutes from the October meeting showed that some directors reported reduced labor slack, with recruiting difficulties and signs of wage pressures in some sectors and parts of the country.

Those that wanted to raise the discount rate saw it as "as appropriate in light of the improvements in labor market conditions this year and their expectations for inflation to rise gradually toward the Federal Reserve's 2 percent objective," the minutes said.

Some directors favored an increase as they thought an earlier start to policy normalization "could allow for a more gradual pace of adjustment," the minutes added.
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