Prepared for a dove turn early! The Federal Reserve Banks of Chicago and New York had supported a discount rate cut in July
The chairs of the Federal Reserve Banks of Chicago and New York are preparing to support a rate cut, possibly lowering the rate target at the September meeting. Meeting minutes on the discount rate show that the majority of decision-makers agree on a rate cut, and relevant officials believe there are reasons to lower the rate. Although regional Federal Reserve Banks can only adjust the discount rate with the approval of the Federal Reserve Board, data shows stable economic activity, slowing inflation, and a balanced job market
The discount rate is the interest rate that deposit banks pay to the central bank for borrowing directly, and this rate is usually related to the interest rate target range set by the central bank.
Minutes of the discount rate meeting often provide clues to the potential direction of monetary policy. The dissent mentioned above is a possible signal that the chairmen of the two regional Federal Reserve Banks - Chicago Fed President Charles Evans and New York Fed President John Williams - were prepared to support a rate cut at a meeting in Washington last month.
With easing inflation pressures and rising risks in the job market, the Fed is almost certain to lower its rate target at the September policy meeting. Fed Chairman Jerome Powell expressed a similar view last Friday at an economic symposium in Jackson Hole, Wyoming.
At the Federal Open Market Committee (FOMC) meeting held at the end of July, the Fed kept the rate target range between 5.25% and 5.5%, with the discount rate remaining stable at 5.5%.
The minutes of the July FOMC meeting released last Wednesday indicated that "the vast majority" of policymakers agreed to cut rates next month, with "several" officials believing there was reason to lower rates at that time.
Without approval from the Federal Reserve Board in Washington, regional Fed boards cannot change the discount rate. Generally, the voting results for adjusting the discount rate are expected to align with the policy inclinations of the regional Fed presidents, but this is not always the case.
The minutes of the discount rate meeting stated that as of last month, the Federal Reserve Board had not expressed any opinions on the level of the discount rate.
In the minutes, regional Fed directors "generally reported stable economic activity, with many directors noting a slowdown in inflation." They also stated, "Reports indicated that labor market conditions continued to trend toward better balance, with wage growth stabilizing or slowing in most regions."