On Tuesday, the Federal Open Market Committee voted to keep its target for the federal funds rate at 5.25 percent.

That rate, the interest rate at which the government lends money to banks overnight, is closely watched by lenders, borrowers and everyone involved in finance across the country, as the fed funds rate acts as a benchmark against which many other important interest rates are pegged.

Even to people who follow the Fed’s movements fairly closely, the eight yearly decisions on interest rates may seem to originate in Washington, D.C., developed by a team of economists who study economic reports but who don’t have much real evidence to go on when they make their decisions.

In fact, the groundwork of gathering information about the United States economy is happening at a grassroots level across the nation, including a strong presence in Montana. Data collected here from business owners and government officials is assessed within weeks as the Fed uses monetary policy to reach its twin goals of low inflation and full employment.

The five members of the board of directors of the Helena Branch of the Federal Reserve Bank of Minneapolis, one of a dozen Fed banks across the country, are charged each month with collecting anecdotal and hard data about the state’s economy.

That information is then discussed by the Helena board; forwarded to Minneapolis for inclusion in a report on the economy of the region; and then sent to Washington, where it’s part of the Summary of Commentary on Current Economic Conditions, better known as the “Beige Book,” which the Federal Reserve Board publishes and relies upon when setting national monetary policy.

Each month, two of the five local board members are assigned three questions to answer. They can cover any aspect of the economy, from labor issues or capital spending to housing starts, the outlook for agriculture or the affect of high energy costs. Two are questions that are asked by directors across the Minneapolis District (which includes Montana, the Dakotas, Minnesota, northern Wisconsin and the Upper Peninsula of Michigan), while the third is specific to Montana.

Tim Bartz, longtime CEO of Anderson ZurMuehlen & Co. in Helena, joined the board of directors at the beginning of the year. Part of his orientation included a trip to Washington to meet with the Fed’s Board of Governors.

“They tell you that what you’re doing is key grassroots research for the Federal Reserve as they’re trying to decide what should happen with monetary policy,” he said. “The advice I was given was to build a network of people that are pretty responsive, and when you get the questions, pick and choose what they have expertise in and gather as much data as you possibly can.”

Already, Bartz has researched transportation issues across the state, as well as polling his peers in the accounting profession for their view on the state’s current and ongoing economic expansion. He spends several hours apiece on the questions he’s assigned, and admits that in addition to the responsibility of contributing to national policy, the fact that he’ll be sharing his findings with some of the country’s top economists provides extra incentive to be thorough and well-versed on the issues at hand.

In remarks at a business luncheon in Billings this week, Minneapolis Fed president Gary Stern said the data compiled on the ground by directors is critical, as it’s some of the most current information the FOMC has in making its decisions.

“One of the strengths of policymaking in the Federal Reserve is the first-hand, timely economic intelligence provided by directors,” he said. “Their information and anecdotes mean that we are not wholly captive of statistics published with a lag that necessarily provide a somewhat dated picture of business activity.”

Dean Folkvord, CEO of Wheat Montana Farms & Bakery in Three Forks, has been on the board for five years.

“It’s that real-time information that’s so valuable,” he said. On a trip Folkvord made to Washington early in his tenure on the board, then-chairman Alan Greenspan “made it clear to point out that the real-time information received from this board of directors is some of the most important data they get.”

Montana’s position is somewhat unique — not every state has its own branch of a Fed bank or its own board of directors reporting specifically on that state’s economy. Montana’s own economic interests may not be overweighted by the Fed, but at the very least, having its own board of directors helps ensure that Montana won’t be overlooked.

“I think it’s an excellent thing for Montana,” Bartz said. “I think we have a unique voice and we do get individual attention. Every month, a top executive (from Minneapolis) is here. We’re talking to their top economists. It’s a unique opportunity for our state to have.”

Folkvord agreed.

“Having five directors in Montana providing information on a monthly basis to Minneapolis is fairly significant,” he said.

How the Fed researches monetary policy

Each month, board members from the various Federal Reserve banks and branches across the country research questions that help develop the country’s monetary policy. In the case of the Minneapolis Fed, whose district includes Montana, some questions are asked across the entire district, while others are asked only in the Treasure State. Some sample issues researched in recent months by Helena board members:

District-wide questions:

n How has immigration affected labor conditions?

n Does there appear to be demand in your area for green building construction?

n What is the outlook for the residential real estate market in your area over the next six months? Have you noticed any softening of prices or building on speculation?

n What is the outlook for capital spending by businesses in your area in 2007?

Montana-specific

questions:

n What best explains the recent rise in copper prices?

n How would you characterize recent residential real estate activity in the Bozeman market?

n What effects have continued strength in natural resource industries had on the Billings area economy?

n What is the outlook for farm income in eastern Montana?

John Harrington can be reached at 447-4080 or john.harrington@helenair.com.