Fra BNP Paribas
The minutes revealed that, for “some members”, the decision to raise the target range in December was a close call. New York Fed President Dudley was likely among those on the fence, and next week’s discount rate minutes are likely to highlight this. This could be perceived as dovish news by the markets, which see Dudley as having a strong influence on FOMC decision-making.
A footnote in December’s FOMC meeting minutes indicated that the Board of Governors voted to increase the discount rate on 16 December and, in taking this action, approved requests submitted by 10-of-the-12 reserve banks. This suggests that the remaining two banks (Minneapolis and New York) probably did not request a change or submitted requests that were not approved by the Board.
Each reserve bank has a Board of Directors, which votes on and submits requests to change the discount rate, which is distinctly different than the FOMC which votes on the federal funds rate. Reserve bank presidents do not submit requests to change the discount rate. However, voting records suggest that the actions proposed by reserve bank directors are often correlated with the views of their presidents.1 The footnote in December’s FOMC meeting minutes is interesting because it suggests that:
• New York Fed President Dudley was likely on the fence about raising rates in December.
• The FOMC participant we rank as the most dovish (Chicago Fed President Evans) may have been more open to lift-off in December than we thought. Elsewhere in the minutes, we learned that, for “some members”, the decision to raise the target range in December was a close call, particularly given uncertainty about inflation dynamics.
By our metrics, “some” means three-to-five participants. New York Fed President Dudley and Fed Governors Tarullo and Brainard were probably among these “some”. All three were FOMC voting members in December. We also think Chicago Fed President Evans was part of this group, despite the fact that the Chicago Fed Board of Directors requested a higher discount rate in advance of December’s meeting. Comments from Evans on Thursday afternoon helped to put this in perspective.
He might have been willing to compromise and support an earlier lift-off (December vs March) assuming a shallower path of rates thereafter. The next set of discount rate meeting minutes will be released on Tuesday 12 January and we expect them to confirm that the New York Fed voted to keep the discount rate unchanged ahead of December’s FOMC meeting. This could be perceived as dovish news by the markets, which see Dudley as having a strong influence on FOMC decision-making.
1 For example, leading up to the September and October FOMC meetings, the Minneapolis Fed’s Board of Directors requested a decrease in the discount rate, while the Chicago and New York Fed’s Directors voted to keep the rate unchanged. It is not a coincidence that former Minneapolis Fed President Kocherlakota’s projection of appropriate monetary policy in September called for negative rates. Minutes reveal requests for a discount rate increase… …from 10-of-12 reserve bank boards December’s decision was a close call for some Discount rate meeting minutes out on 12 January
