Disco Rate 10 to 2

Dallas and Kansas City Fed Banks voted to raise the Discount Rate to 1%. The remaining Board- not FOMC - members all voted to hold. The interesting aspect was the winning reasoning. Rising commodity prices were seen as a detriment to economic growth. Energy in particular was viewed as a tax. "Fiscal stringency at ALL levels of government" was another concern.

Valid as the arguments may be, why didn't anyone ask: What do they have to do with the Discount window? Does the Fed believe that these inputs are severe enough to impact the heavily backed financial system? Would normalizing the spread have ANY echo in the real world? The Fed knows its constituents. The reluctance to garner more than 2 votes with oil and equity up is a head-scratcher. What does the Board know that is keeping them so cautious?

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