WASHINGTON: Some Federal Reserve policy makers sought an early hike in its benchmark interest rate amid growing confidence in the US economy, minutes from their January meeting showed Wednesday.
The minutes of the Federal Open Market Committee meeting of January 28-29 revealed the group was increasingly upbeat, shrugging off fresh turmoil in emerging markets and judging that poor December employment numbers were mainly weather-related.
The FOMC meeting ultimately delivered a consensus view that the Fed's benchmark short-term interest rate should remain at the ultra-low level of 0-0.25 percent, where it has been for five years, and stuck to forecasts for it to remain there into 2015.
The main outcome of the meeting was a second cut in as many months to the Fed's bond-buying program, reducing the monthly stimulus by $10 billion to $65 billion and pledging further "measured" reductions at future meetings, as long as economic conditions held up.
But in the first shift in months away from dovish caution in the FOMC, the minutes of the meeting disclosed a clear increase in members advocating monetary policy tightening this year.
"A few" members saw it appropriate to raise the Fed's key interest rate "relatively soon", amid rising market expectations of faster economic growth and rising rates even as inflation remains very low.
Some of those members also cited standard monetary policy rules which pointed to raising the federal funds rate, currently 0-0.25 percent, before the middle of 2014.
On the other side of the debate, FOMC members who opposed an earlier increase argued that standard policy did not apply to the current situation, due in part to "the lingering effects of the financial crisis".
But the mere revelation of some discussion of an early rate hike moved markets: the dollar rose against the euro and US Treasury bond yields surged, while stocks fell.
The meeting, which was led for the final time by Chairman Ben Bernanke, with his soon-to-be successor Vice Chair Janet Yellen at his side, showed the group still cautious about the economy.
One challenge was how to finesse their having established, a year earlier, a target threshold of 6.5 percent for the US unemployment rate for winding up the bond-buying program.
The FOMC had expected that level to be reached only as early as mid-2014, but the December rate had already fallen to 6.7 percent, and days after the January meeting, the rate dropped another notch to 6.6 percent.
Despite that fall in the rate, the FOMC was clearly not ready to withdraw all stimulus and stop trying to support job creation.
Bernanke and Yellen have both underscored in public statements their concern over the still-high levels of long-term unemployed and those forced to accept only part-time jobs, and those issues were also reiterated in the January FOMC meeting.
The group agreed they would have to change how they guided expectations of monetary policy, though the minutes showed no consensus on how that would be done.
Another issue was the low inflation level, at about half of the FOMC's goal of around 2.0 percent annually. In the statement issued from the meeting, the FOMC maintained its view that it still expects inflation to pick up over the longer term.
But the minutes showed uncertainty about that. "In light of their concerns about the persistence of low inflation, many members saw a need for the committee to monitor inflation developments carefully for evidence that inflation was moving back toward its longer-run objective," they said.
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