All but one of the Federal Reserve Banks sought to leave the primary credit rate, better known as the discount rate, unchanged at 75 basis points in April, minutes of the Federal Reserve Board's discount rate meetings released Tuesday show.

Once again, directors of the Kansas City Fed wanted to raise the rate 25 basis points to 1% in a bid to "normalize" the Fed's rate structure.

The directors of the other 11 Federal Reserve Banks were content to leave the primary credit rate, at which the Fed makes very short-term loans to sound depository institutions, at 75 basis points in the face of "moderate" economic growth haunted by downside risks and low inflation.

The Boston Fed board of directors, which had long requested a cut in the discount rate to 50 basis points until late February, went with 10 other Bank boards in requesting that the discount rate be left at 75 basis points.

The Fed Board of Governors, which regularly considers such requests, acceded to the majority will and left the primary credit rate at 75 basis points at meetings on April 8 and April 29. The vote was unanimous.

By keeping the discount rate at 75 basis points, the Fed Board preserved the 50 basis point spread between the upper range of the federal funds rate target and the discount rate that has been in effect since February 2010.

At that time the discount rate was raised to widen the spread from 25 basis points to 50 basis points in what was described as a move toward "normalization." Prior to the financial crisis, the discount rate stood 100 basis points above the funds rate, but as the mortgage crisis worsened in 2008, the Board narrowed the spread to 25 basis points while also slashing the funds rate.

In advocating a higher discount rate, the Kansas City Fed directors would have moved back toward the pre-crisis spread. They "favored a move toward normalization of the primary credit rate in light of current and anticipated economic conditions," say the minutes.

Characterizing the view of Federal Reserve Bank directors more generally, the minutes say they "continued to view the pace of economic expansion as moderate."

"Several directors noted that recent data on economic activity had been mixed," the minutes continue. "Many directors noted further improvements in the housing sector."

As for labor market conditions, the minutes say "job growth was described as modest, on balance, and the unemployment rate remained elevated."

"Overall, directors continued to see downside risks to the outlook, and they expressed concern that unresolved fiscal issues could be restraining hiring and economic growth more broadly," the minutes go on. "Inflation was seen as subdued, and longer-term inflation expectations generally had remained stable."

"Against this backdrop, most directors recommended that the current primary credit rate be maintained," the minutes add.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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