WASHINGTON (MNI) – The Kansas City and Dallas Federal Reserve Bank
directors three times during the summer voted to raise the discount rate
a quarter point and failed to get support for the idea at headquarters,
the minutes, released Tuesday, showed.

Beginning June 24, in July and a third time, at the end of July and
the beginning of August, Dallas and Kansas City directors sent their
recommendation for an increase to Washington.

On July 6 and 19 four members of the Federal Reserve Board —
Chairman Ben Bernanke, Vice Chairman Donald Kohn and Governors Elizabeth
Duke and Daniel Tarullo — routinely dismissed the idea. In the words of
the minutes both times, “At today’s meeting, no sentiment was expressed
in favor of considering the primary credit rate, and the existing rate
was maintained.”

Then on Aug. 9, the day before the Federal Open Market Committee
Meeting, when Gov. Kevin Warsh joined the discussion, there was at least
some talk, as the minutes described it, “on a preliminary basis, their
individual assessments of the appropriate rate and its communication,
which would be discussed at the meeting of the Federal Open Market
Committee.”

The Board’s determination again at that meeting was to maintain the
existing three-quarters of a point discount rate and, while the FOMC the
next day presumably went ahead and discussed it as well, there was no
action there either.

The minutes of that FOMC meeting, released Aug. 31, reflect
mentions of the inflation rate, the 30-year Treasury rate, the federal
funds rate, the corporate bond rate, Libor rates, mortgage rates, the
rate of consumer spending and the unemployment rate, but not of the
primary discount rate.

The discount rate minutes do reflect the same discussion of the
current economy in early August as did the minutes of the FOMC meeting.
The discount rate minutes said that the Board members, in their
discussion Aug. 9, “emphasized that an increase in this spread (between
the discount rate and the federal funds rate) would not represent a
change in monetary policy, but rather a move toward normalization of the
primary credit rate.”

** Market News International Washington Bureau: 202-371-2121 **

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