Minutes from the Federal Reserve’s discount rate meetings reveal that a majority of regional bank directors initially opposed the interest rate cut implemented last December. Directors at eight of the twelve regional Federal Reserve banks voted to maintain the existing discount rate, the rate charged to commercial banks for emergency loans. This occurred ahead of the Fed’s December 9-10 meeting where policymakers ultimately decided, in a 9-3 vote, to lower the policy rate by a quarter of a percentage point.
The directors of the New York, Philadelphia, St. Louis, and San Francisco Fed banks voted in favour of a primary credit rate cut mirroring the Fed’s policy rate adjustment. Conversely, directors from banks including Chicago and Kansas City dissented, aligning with their respective presidents who also voiced hawkish views during the policy vote. Boston Fed directors also voted to hold the discount rate steady, despite Boston Fed President Susan Collins eventually voting for the policy rate cut, a decision she described as a ‘close call.’
Directors from the Richmond, Cleveland, Atlanta, Minneapolis, and Dallas Fed banks also signalled a preference for no rate cut by voting to keep the discount rate unchanged. The minutes indicated that ‘most directors noted strong demand for investments related to AI and data centre financing and construction’ and anticipated tariff-related cost increases in 2026. This expectation of robust business spending and rising prices may explain the widespread support among Fed bank directors for maintaining borrowing costs at their current levels.
While the discount rate is voted on at regular meetings by regional Fed bank boards, the Fed Board ultimately sets it to match the top of the range of the policy target rate. Fed bank directors are not policymakers, and their role is to meet with their respective Fed presidents, providing input that helps shape their perspectives. The Federal Reserve System provides the nation with a safe, flexible, and stable monetary and financial system. It supervises and regulates banks and provides financial services to depository institutions and the U.S. government.
