While the probability of a November rate-hike has collapsed to just 8.5% (as Dec holda round 65%) it appears regional Federal Reserves have a very different perspective of when Janet should hike. Nine of the Fed’s 12 regional banks sought a quarter-point increase in the discount rate in September, up from eight in August, based on minutes of their board meetings published by Fed. This is the same number as right before the December hike in 2015.
As Bloomberg reports, The Atlanta Fed joined the calls for an increase in the discount rate, pushing the number of regional banks asking for a hike to its highest since December 2015. That month was the last time the Fed raised the federal funds rate, a separate interest rate that is its primary policy tool. Discount rate votes can be viewed as a signal of whether a bank’s president favors a change in the main rate.
Atlanta joined banks seeking a 1.25% rate. Other banks supporting the hike were Boston, Cleveland, Dallas, Kansas City, Philadelphia, Richmond, St. Louis and San Francisco: minutes
- Strengthening economy, labor markets seen as fostering gradual return to 2% inflation: minutes
Chicago, Minneapolis, New York wanted no change
- Economic outlook, below-target inflation seen as supporting need to maintain accommodative policy: minutes
Directors generally said economic activity was expanding at a moderate pace, though reports varied “somewhat” across sectors and regions
- Several had positive reports on consumer spending, including strength in auto sales
- Many said housing sector was solid, commercial construction “healthy”
- Some mentioned continued weakness in global economy, downside risks to outlook
- Most saw tighter labor market across sectors, along with upward pressure on compensation for many workers
“Most directors noted tighter U.S. labor markets across skill levels and different sectors, accompanied by upward pressures on compensation for many categories of workers,” according to the minutes. Most directors recommended the increase “in light of actual and expected strengthening in economic activity and labor markets, which should foster a gradual return of inflation to 2 percent over the medium term.”
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As we noted previously, recall that on November 24, one month before the Fed did hike rates by 25 bps, 9 regional Feds requested a Discount Rate hike, the same as currently. With 9 of 12 regional Feds on the same page as of this moment, it suddenly appears that any appearance of a "dovish" Yellen may reep more mutinous calls if she again ignores the majority.