Federal Reserve minutes show sharp reversal on interest rates

Most Federal Reserve bank directors voted for keeping the discount rate unchanged in mid-January, just weeks before the central bank raised the rate it charges for direct loans, according to minutes released in Washington.

Directors at the St. Louis and Kansas City, Mo., Fed banks voted to increase the discount rate by a quarter of a point, to 0.75%, on Jan. 14, while directors at the 10 remaining regional Fed banks voted to maintain the rate at 0.5% during the month, minutes of the Fed board’s decisions showed Tuesday.

The minutes, with a final entry of Jan. 25, don’t include details on the unanimous vote by all 12 regional Fed bank boards to raise the rate by a quarter-point this month.

The Fed board said last week that the higher discount rate shouldn’t “lead to tighter financial conditions for households and businesses” or signal a change “in the outlook for the economy or for monetary policy.”

About a month before that decision, directors at 10 regional Fed banks, including Richmond, Va., Cleveland and Dallas, saw little need to raise the rate. “Overall economic activity remained weak, with substantial slack in resource utilization,” the minutes said.

Directors at the two banks that favored a higher rate sought to “restore a more normal discount rate structure,” the minutes said.