Nine US Fed banks called for discount rate hike: minutes

[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 US central bank may be close to tightening monetary policy, minutes from its discount rate meeting showed on 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 per cent from 0.75 per cent, 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.

US interest rate futures on Tuesday suggested that traders saw a 74 per cent 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 per cent.

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 per cent objective," the minutes said.

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

REUTERS