Majority of Fed banks voted against December change to discount rate

• Only four Fed banks (New York, Philadelphia, St. Louis, and San Francisco) supported the discount rate cut, while eight opposed it, including banks whose presidents cast dissenting votes
• Directors cited strong AI and data center investment demand and anticipated tariff-related cost increases in 2026 as reasons for caution on rate cuts
• Boston Fed President Susan Collins voted for the policy cut despite her directors opposing the discount rate change, later calling it a 'close call'

Summary:

Eight of the 12 Federal Reserve regional bank boards voted against changing the discount rate ahead of the December Fed meeting, revealing significant internal disagreement over monetary policy direction. Despite this opposition, Fed policymakers proceeded with a 0.25 percentage point rate cut on December 9-10 in a contested 9-3 vote.

Only four regional banks—New York, Philadelphia, St. Louis, and San Francisco—supported reducing the primary credit rate to match the policy rate adjustment. The eight banks voting to maintain the existing rate included Chicago and Kansas City, whose presidents cast hawkish dissents at the policy meeting. Notably, Boston Fed directors opposed the discount rate change, though President Susan Collins ultimately supported the policy cut, calling it a "close call."

Key factors influencing opposition:

• Strong investment demand for AI and data center financing and construction
• Anticipated tariff-related cost increases in 2026
• Concerns about higher prices

The discount rate votes, while not directly determining policy, often reflect Fed bank presidents' views and influence their outlook. Presidents from Richmond, Cleveland, Atlanta, Minneapolis, and Dallas had previously expressed public reservations about further rate cuts.

The December decision lowered the Fed's policy target rate to 3.5%-3.75%, with the discount rate adjusted to match the top of this range. The minutes underscore growing divisions within the Fed regarding the appropriate pace of monetary easing, particularly as strong business spending and inflationary pressures from tariffs complicate the policy outlook for 2026.

Market implications: Internal Fed discord and concerns about persistent inflation may limit future rate cuts.