Two Fed banks wanted rate hike in June

By Rex Nutting, MarketWatch
Last update: 2:12 p.m. EDT July 22, 2008 Comments: 3

WASHINGTON (MarketWatch) -- Directors at two of the 12 Federal Reserve banks asked for -- but didn't get -- an increase in interest rates in June to fight inflation, according to a summary of Fed board meetings released Tuesday.

On June 23, the boards of the Fed banks in Kansas City and Dallas asked the Fed to raise the discount rate (also known as the primary credit rate) from 2.25% to 2.50%. The Fed board did not act on those requests.

Two days later, the larger Federal Open Market Committee voted to keep the federal funds target rate steady at 2%.

The regional bank directors who wanted rate hikes "favored reversing some of the monetary policy easing that had been implemented in recent months," arguing that downside risks to the economy "were outweighed by the upside risk of inflation," the truncated minutes said.

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Fed keeps short-term interest rates unchanged

By: Holden Lewis • Bankrate.com

Short-term interest rates remain unchanged as honchos in the Federal Reserve try to figure out which is the greater danger: inflation or recession.

The central bank's Federal Open Market Committee left the target for the federal funds rate at 2 percent, as expected. The prime rate will remain 5 percent. Most home equity lines of credit and variable-rate credit cards are based on the prime rate, and their rates will not change.
The rate-setting committee meets eight times a year. In the previous seven meetings dating back to last summer, the panel cut rates. The reduction in the federal funds rate was unusually rapid, going from 5.25 percent in September to 2 percent in April, as the Fed fought off a credit crunch.

With the economy in a slump, and with prices rising rapidly, the Fed has found itself in a dilemma. Short-term rates already are low, and if the central bank cuts them more to stimulate economic growth, then prices could rise even faster and get out of control. If the Fed raises short-term rates, the result could be a recession (or a deeper recession, if the economy already is in one) and a delayed recovery.

All this in an election year.

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