Federal Reserve policymakers were increasingly split on the outlook for inflation and how it might affect the future pace of interest rate rises, according to the minutes of the Fed's last policy meeting on June 13-14 released on Wednesday.
Some Fed officials want to announce the beginning of the process "within a couple of months", according to minutes of the USA central bank's June meeting. The minutes show a Fed divided between officials comfortable with the unemployment rate undershooting their estimates about the sustainable level and those who fret that "a substantial and sustained unemployment undershooting" could trigger inflation or financial instability.
The market consensus is toward a start in September, which would likely push another interest rate hike to the end of the year despite the Fed's optimism that stubbornly weak inflation will pick up. Inflation, in particular, has proved hard to nudge closer to the Fed's 2 percent target, while in the first three months of the year the economy grew at a rate of only 1.4 percent.
Some policymakers since then, however, have shown increasing worry about the Fed's struggle to get inflation back to its 2 percent objective.
The Fed voted in June to raise short-term rates by a quarter point to a range of 1 to 1.25 percent, the third quarter in a row the bank has lifted rates.
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At the June meeting, the Fed gave a clear outline of its plan this year to reduce its portfolio but gave no precise timing. The Fed foresees one additional rate hike this year without specifying when that could occur. Some Fed officials suggested at the June meeting that this reflects both the possibility of slower economic growth and the influence of the Fed's own bond holdings.
In their forecasts, Fed officials have signaled another small rate increase is coming this year, and three more are expected in 2018 until the rate reaches about 2.1%. Meanwhile, U.S. officials will soon confront the challenge of raising the debt ceiling to continue to fund the government. A few others expressed concern that "subdued market volatility" could lead to financial stability risks. The increase of 0.25 percentage point raised the rate to between 1% and 1.25%. The Fed will gradually accelerate efforts to shrink its portfolio, eventually shedding $30 billion in Treasury bonds and $20 billion in mortgage-backed assets on a per-month basis.
As of Wednesday afternoon, markets were projecting a 97 percent chance that the Fed would remain on hold when it meets again in July.
In a press conference following the conclusion of the June meeting, Yellen attributed lower inflation in part to temporary factors, like one-off decreases in the prices for cell phone services and prescription drugs.