9 regional Fed banks voted for increasing the discount rate from 0.75% to 1% in the last discount rate meeting. Last month, there were 8 banks who wanted a rate hike. The nine regional banks that requested a rate hike want to normalize the spread between the discount rate governing the Fed lending to banks and overnight federal funds rate, which is its primary economic lever. According to CME Group's FedWatch, that there is a 74% chance that the Fed will increase the interest rates next month for the first time in almost a decade.
On the contrary, the Minneapolis Fed again voted to cut the discount rate to 0.50% from 0.75%. Those who wanted an increase in the rates said that it is the perfect time to do so since there is improvement in the labor market and also there is a gradual increase in the inflation rate toward's Fed's target of 2%. Some of them also figured that this early increase would help pace the policy normalization adjustments more efficiently.
http://www.businessinsider.com/r-nine-fed-banks-called-for-discount-rate-hike-minutes-2015-11
On the contrary, the Minneapolis Fed again voted to cut the discount rate to 0.50% from 0.75%. Those who wanted an increase in the rates said that it is the perfect time to do so since there is improvement in the labor market and also there is a gradual increase in the inflation rate toward's Fed's target of 2%. Some of them also figured that this early increase would help pace the policy normalization adjustments more efficiently.
http://www.businessinsider.com/r-nine-fed-banks-called-for-discount-rate-hike-minutes-2015-11
3 comments:
You proposed some important points that were also brought up at the economic conference this year. It was stated at the conference that inflation rates need to be steadily increased in order for a interest rate hike to be sustainable. I believe the gradual increase in the inflation rate towards 2% indicates that rates are expected to increase. This is also supported by the improvement in the labor market and the 8 banks that wanted a rate increase last month. I believe a rate hike is imminent in the near future to normalize the spread between the discount and federal funds rate.
With unemployment just under 4.9%, salaries increasing, and the number of workers being hired increasing, it is clear that the labor market is making its way into good standing. A variety of economic indicators have implied the stability and growth of the economy, further pushing for the hike in rates. Also, Yellen had noted in an October press conference that with the gradual increase of interest rates, will come the incremental increase in inflation working toward the target 2%. Energy and import prices will be increasing in order to get the inflation rate up. Therefore, with all of these factors in mind, I would think that both state and federal level banks would confirm that now is the time to raise rates.
I agree with both of the above comments. With the economy finally looking to be in an upward direction in most facets this would seem like a great time to finally begin to raise the interest rates. As Sophia pointed out, raising the interest rates would also help to raise inflation which is currently below the targeted 2%. I also think with the way the market is performing consumer confidence is also rising and as a result, consumers would be ready to invest money if given an incentive through some returns on both their savings and investments. Currently, consumers have been spending money because of the lack of incentives from banks due to low interest rates resulting in almost zero returns on their savings and by raising the interest rates this would encourage saving and also encourage consumers to begin once again to invest in the economy to further increase inflation and other market factors ever closer to their targeted number.
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