Two regional Fed banks had wanted boost in emergency lending rate in mid-January

Push for discount rate hike started in mid-Jan

WASHINGTON — A push to bump up the interest rate banks pay the Federal Reserve for emergency loans started in mid-January, according to a document released Tuesday.

The Fed’s regional banks in St. Louis and Kansas City were the first to call for the rate increase on Jan. 14.

In a surprise move last week, the Fed boosted the emergency lending rate by one-quarter percentage point to 0.75 percent. By that time, all 12 regional Fed banks were on board.

James Bullard, president of the Federal Reserve Bank of St. Louis, and Thomas Hoenig, head of the Federal Reserve Bank of Kansas City, have reputations for being inflation hawks. Hawks worry more about super-low borrowing costs and other special support stoking inflation, while “doves” worry more about rising unemployment.

Details of the discussions over the emergency lending rate were contained in minutes of a Jan. 25 closed-door meeting. The minutes said that “some Federal Reserve directors” indicated that they favored increasing the emergency lending rate to banks “in light of improving conditions in financial markets.”

The Fed’s announcement last week to boost the so-called “discount” rate doesn’t directly affect borrowing costs for millions of Americans. But with the worst of the crisis over, it brings the Fed’s main crisis lending program closer to normal.

At the same time, the Fed stressed that this step should not be seen as a signal that it will soon boost interest rates for consumers and businesses. It repeated its pledge to keep its main interest rate — the federal funds rate— at record-low levels for an “extended period” to foster the economic recovery. The Fed has kept the target range for the funds rate at between zero and 0.25 percent since December 2008.

When the time does come to tighten credit, Fed Chairman Ben Bernanke said the Fed will likely start to tighten credit by raising the rate it pays banks on money they leave at the central bank. Doing so would raise rates tied to commercial banks’ prime rate and affect many consumer loans. That would mark a shift away from the funds rate, its main lever since the 1980s.