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Fed banks split in December on what to do with discount rate

Minneapolis Federal Reserve Bank President Narayana Kocherlakota speaks at a macro-finance conference hosted by the Boston Federal Reserve B
Minneapolis Federal Reserve Bank President Narayana Kocherlakota speaks at a macro-finance conference hosted by the Boston Federal Reserve B

WASHINGTON (Reuters) - One regional Federal Reserve bank continued to push for a cut in the U.S. central bank's emergency lending rate in December, while three others renewed a request to hike it, minutes of Fed deliberations released on Tuesday showed.

The Minneapolis Federal Reserve Bank asked the Fed's board ahead of a December 17-18 policy meeting to lower the discount rate to 0.5 percent from 0.75 percent, while the Philadelphia, Kansas City and Dallas Fed banks requested an increase to 1.0 percent, the minutes said.

The discount rate is the amount the Fed charges banks who turn to the central bank for needed funds when they are unable to raise them in the private market.

The minutes of the Fed's board discussions showed that part of the reason the three regional banks wanted to raise the discount rate was to bring the spread between it and the federal funds rate back to its pre-crisis level of 1 percentage point. The federal funds rate governs the cost of overnight borrowing between banks and is the Fed's main monetary policy lever.

In contrast, directors at the Minneapolis Fed "believed that a lower setting would help to foster the (central bank's) macroeconomic objectives of maximum employment and price stability. The head of the Minneapolis Fed, Narayana Kocherlakota, has said the economy is in need of more stimulus not less.

At its December meeting, the policy-setting Federal Open Market Committee opted to keep the federal funds rate near zero but decided to begin reducing the pace of the bond purchases it has been making to keep long-term borrowing costs depressed.

(Reporting by Timothy Ahmann; Editing by Andrea Ricci)

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