Federal Reserve officials debated at their July policy
meeting whether they might need to raise interest rates sooner than expected in
light of a strengthening recovery, but they were restrained by lingering doubts
about whether the economy's gains would persist. The minutes of the meeting
show an intensifying debate inside the central bank about when to respond to a
surprisingly swift descent in the unemployment rate and a pickup in consumer
prices.
Some Fed officials say this long-sought economic progress
warrants moving toward tighter credit soon, but they were outnumbered at the
meeting by those who wanted more evidence before signaling that rate increases
are on the way.
Short-term U.S. rates have been held near zero since the
depths of the financial crisis in December 2008. Most Fed officials believe
they can wait until 2015 before raising rates and have encouraged a perception
in financial markets that rate increases won't start until the middle of the
year.
The search for clues on rate-hike timing now turns to Fed
Chairwoman Janet Yellen's address Friday at a central-bank symposium in
Jackson Hole, Wyo. The conference is focused on labor markets and Ms. Yellen has
argued through her first six months on the job that an abundance of part-time
workers and long-term unemployed suggest labor markets and the broader economy
weren't near overheating.
Stocks initially dipped on the report, which analysts said
struck some investors as more sympathetic to rate increases than before, but
share prices largely finished higher. The Dow Jones Industrial Average rose 0.35%.
Yields on 10-year Treasury notes rose to 2.426%; they remain down more than
half a percentage point from early this year.
The Fed's next move depends largely on how the economy
performs in the second half of the year. The jobless rate was 6.2% in July,
down from 7.3% a year earlier. Inflation has picked up after running below the
Fed's 2% objective for two straight years. The U.S. economy grew at a 4% annual
rate in the second quarter after contracting during the wintry first quarter.
Since the last meeting, inflation data have softened a touch
and the jobless rate ticked up by one-tenth of a percentage point. Among the
Fed's major concerns: The economy's first-quarter contraction caused
uncertainty about the outlook.
The Fed has been saying for months it expects to keep its
benchmark federal funds rate near zero for a "considerable time"
after it completes a bond-buying stimulus program in October. Officials who
want early rate increases are pushing the central bank to drop that guidance.
Fed officials also were at odds over how to describe the job
market. Some disagreed with a new sentence in the central bank's policy
statement declaring that "significant underutilization of labor
resources" persisted.
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