WASHINGTON – Five of the United States' 12 regional Federal Reserves (search) wanted to hold the discount rate steady in the immediate aftermath of Hurricane Katrina (search), documents released by the U.S. central bank showed on Tuesday.
Board directors of the five — Cleveland, Atlanta, St Louis, Dallas and San Francisco — wanted to keep the discount rate steady at 4.5 percent until more was known of the impact the storm's destruction would have on U.S. growth.
"Those in favor of maintaining the primary credit rate generally preferred to wait until a fuller assessment could be made," according to minutes of the discount rate meetings.
"Some directors noted, however, that the damage and disruption caused by the hurricane had prompted them to lower their expectations for economic growth for the remainder of the year," they added.
The central bank's Federal Open Market Committee (search) voted on September 20 to raise the federal funds overnight rate by a quarter percentage point to 3.75 percent and the discount rate by the same amount to 4.75 percent.
Atlanta, whose Fed district includes the city of New Orleans, had previously voted on August 11 to raise the discount rate, before Katrina forced a change of mind.
The discount rate governs the cost of borrowing for banks from the Federal Reserve system. These days its role is mainly symbolic, including giving regional Fed bank directors the ability to make their wishes known on monetary policy. Fed bank directors are mainly local businessmen.