Back in April, when the world was still reeling from the China devaluation inflicted market slump, the Fed’s discount rate minutes for the months of March/April showed that 4 regional Feds wanted a 25 bps rate hike, up from just two – the Richmond Fed and Kansas City – in the Feb/March meeting. Moments ago the Fed released its latest May/June Discount Rate Minutes which revealed that both the (Jim Bullard’s) St. Louis and Boston Feds joined four other regional Feds, Cleveland, Richmond, Kansas City and San Francisco, in seeking a quarter point increase in Fed discount rate to 1.25 percent prior to the June 14-15 FOMC meeting.
Obviously, there was no rate hike, as the Fed chose to maintain its primary credit rate at 1%. What is more surprising is that Bullard’s St. Louis Fed was among the “hawks”, even though just a few weeks later, the same James Bullard infamously flipflopped and now predicts just one rate hike until 2019.
The regional directors who supported a rate hike increase did so “in light of actual and expected strengthening in economic activity and their expectations for inflation to gradually move toward the 2 percent objective.”
However, it is worth noting that Boston, Richmond, St. Louis, New York, Philadelphia, and Minneapolis voted on June 2, just a day ahead of June 3 report which revealed the abysmal May U.S. payrolls report and which ground the Fed’s rate hike cycle to a halt.
From the minutes:
Subject to review and determination by the Board of Governors, the directors of the Federal Reserve Banks of New York, Philadelphia, and Minneapolis had voted on June 2, 2016, and the directors of the Federal Reserve Banks of Atlanta, Chicago, and Dallas had voted on June 9, to reestablish the existing rate for discounts and advances (1 percent) under the primary credit program (primary credit rate). The directors of the Federal Reserve Banks of Boston, Richmond, and St. Louis had voted on June 2, and the directors of the Federal Reserve Banks of Cleveland, Kansas City, and San Francisco had voted on June 9, to establish a rate of 1-1/4 percent (an increase from 1 percent). At its meeting on May 23, the Board had taken no action on requests by the Cleveland, Richmond, Kansas City, and San Francisco Reserve Banks to increase the primary credit rate.
Federal Reserve Bank directors generally indicated that economic activity was expanding at a moderate pace, though their reports were somewhat mixed across different sectors and Districts. Several directors noted improvements in consumer spending and a high level of auto sales. They also reported further progress in the housing sector, along with rising prices for single-family homes. Reports on commercial real estate generally pointed to continued strength. However, directors also cited ongoing weakness in manufacturing, agriculture, and export-related industries. Labor market indicators were improving, but several directors reported that companies were being cautious about adding staff. Some directors also noted that businesses were still having difficulty hiring and retaining workers for particular occupations and in certain regions. Inflation remained below the Federal Reserve’s 2 percent objective.
Against this backdrop, directors at several Federal Reserve Banks recommended that the current primary credit rate be maintained. In general, they judged that labor market conditions and below-target inflation supported maintaining the current accommodative stance of monetary policy. Other Federal Reserve Bank directors recommended increasing the primary credit rate to 1-1/4 percent, in light of actual and expected strengthening in economic activity and their expectations for inflation to gradually move toward the 2 percent objective.
So is 6 sufficient to push Yellen to move with a rate hike in September? Hardly: recall that on November 24, one month before the Fed did hike rates by 25 bps, a whopping 9 regional Fed requested a Discount Rate hike. With only six regional Feds on the same page as of this moment, and before the recent volatility in job numbers not to mention Brexit, it is very unlikely that the Fed will be hiking any time soon.
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