Minneapolis Fed drops request for cut in emergency lending rate

Tue Feb 25, 2014 2:09pm EST

(Reuters) - A Federal Reserve bank that had for months lobbied for a cut in the U.S. central bank's emergency lending rate dropped that request in January, minutes of Fed deliberations released on Tuesday showed.

The Minneapolis Fed, whose chief is among the U.S. central bank's most outspoken doves, had sought a reduction in the discount rate to 0.5 percent from 0.75 percent for four months running, but in January voted with eight other regional Fed banks to keep the rate unchanged ahead of the Fed's January 28-29 policy-setting meeting.

Meanwhile the Philadelphia, Kansas City and Dallas Fed banks, whose presidents are all among the Fed's most hawkish policymakers, renewed their longstanding requests for an increase to 1.0 percent, the minutes said.

The discount rate is what 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.

Overall, Fed bank directors were "generally optimistic that the economy would continue to expand at a moderate pace," the minutes said. With longer-term inflation expectations stable, most felt the rate should stay where it is.

At its January meeting, the policy-setting Federal Open Market Committee continued its wind-down of its massive bond-buying program, cutting monthly purchases by $10 billion for the second meeting in a row.

(Reporting by Ann Saphir; Editing by Chizu Nomiyama)

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