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Philly Fed among regionals backing interest-rate boost

Top Federal Reserve officials have been "fractured" in a "growing split" on what to do about U.S. interest-rate targets, writes Bob Eisenbeis, the former Fed research economist now with Vineland- and Sarasota-based Cumberland Advisors.

Top

Federal Reserve

officials have been "fractured" in a "growing split" on what to do about U.S. interest-rate targets, writes

Bob Eisenbeis

, the former Fed research economist now with Vineland- and Sarasota-based

Cumberland Advisors

.

While Fed Chairman Janet Yellen and her top lieutenants in Washington and New York have been heeding Wall Street's demand for continued cheap money, most regional Fed boards, including Philadelphia's, have lately formed a more hawkish front, seeking to boost interest rates, at least by a token amount.

Cheap money is beloved, naturally, by consumers, homebuyers, and small-business borrowers - and by developers, investment bankers, foreign-trade financiers, and other speculators.

Higher rates are preferred by long-suffering American retirement savers, bond buyers, money lenders, those who fear inflation, and moralists who think nothing good can come from depending too much and for too long on other people's cash.

Eisenbeis has traced the regional shift in sentiment toward higher rates in the biweekly discount rate advice reports from the 12 regional Fed banks. As of September, eight of the regional Fed boards, a two-thirds majority, favored boosting the benchmark discount rate charged to banks, from the current 0.5-0.75 percent, to a full 1 percent.

That was a switch: The previously dovish Atlanta, St. Louis, and San Francisco boards joined longtime hawks Philadelphia, Cleveland, Dallas, and Kansas City, and earlier convert Richmond.

At least initially, the Philly Fed under its new president, Patrick Harker, the engineer-economist who formerly headed the University of Delaware and University of Pennsylvania's Wharton School, is continuing the higher-rates preference from the days of his conservative predecessor, Charles Plosser, who relentlessly fought inflation even when there wasn't any.

By contrast, the Wall Street-flavored local Fed board in New York City, backed by Boston and Chicago, still opposed even this 0.25 percent boost in interest targets (with Minneapolis uniquely favoring still cheaper money).

Each local Fed's vote is supposed to represent its board of bankers and "public" representatives. Philadelphia's "public" representatives - the men (and one woman) who speak for you - are Comcast Corp. executive Michael Angelakis, and the heads of private businesses AlliedBarton Security Services, South Jersey Group (gas), Swarthmore Group (investments), and TouchPoint Inc. (medical tech, "intelligent vending").

But Eisenbeis notes that each local president is typically "in sync" with his local bank board, "and it is unusual to find significant differences on policy," between presidents like Harker and their board members.

Is this divergence between the know-it-alls in Wall Street and Washington, and the business/banker boards in most of the rest of the country, a problem?

"Different views," in themselves, are "not a sign of a lack of leadership or a problem," Eisenbeis concludes. At least both sides are talking. That shows "a healthy institution."

But there's no change in policy, let alone majority rule, just yet.

JoeD@phillynews.com

215-854-5194 @PhillyJoeD

www.inquirer.com/phillydeals