A notification on the
Web site calling for an expedited meeting to discuss the discount rate sparked rumors of an emergency rate cut Monday. But analysts said the announcement isn't unusual and doesn't suggest that unusual pressure is building for another reduction in interest rates.
The board, which is separate from the Fed's policy making Federal Open Market Committee, issued a release ahead of Monday's meeting saying matters under consideration would include "review and determination by the board of governors of the rates of discount to be charged by the Federal Reserve Banks."
While the language isn't unusual for such a release, some investors felt the subject matter could be significant (the board doesn't necessarily consider rate policy at every meeting), and the timing of such a discussion ignited some extra volatility in the bond market.
The FOMC voted to leave the discount rate unchanged at its Sept. 24 meeting, but minutes from the session showed their were two dissenting votes cast in favor of an immediate rate cut. Governor Edward Gramlich and Dallas Fed president Robert McTeer both voted in favor of an immediate ease.
Some investors suggested that the board of governors could be preparing to hear petitions from members who continue to be in favor of an interest rate cut.
The FOMC comprises the board of governors and various regional bank presidents.
Still, Tony Crescenzi, chief bond strategist at Miller Tabak, dismissed the Fed's notice Monday, saying that the central bank holds meetings nearly every week and that the board often considers requests for changes to the discount rate.
"The only significant thing about this today is it's being talked about," he said. "What it shows is the market is looking for remedies for its problems, this rumor could come up any week."
Other Fed watchers agreed, saying the announcement is nothing more than a bureaucratic procedure allowing the Fed to conduct meetings behind closed doors.
Under a law known as the Sunshine Act, the Fed -- like other government agencies -- must allow the public to attend meetings where significant decisions are made. But when the Fed wishes to conduct a meeting in private, it must file a notice declaring that it is not in the public's interest to attend.
"It's a regular meeting and I don't think it really means anything," said David Gitlitz, chief economist at Trend Macrolytics. "Usually no one takes any notice of it but in this environment people are paying more attention."
The market has now fallen for six straight weeks, with the Dow at its lowest level in almost five years and the Nasdaq sitting at its lowest point since 1996.