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, released Wednesday with their regular three-week delay, 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. The minutes don't identify participants by name or specify the number who held certain views.
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.
She has argued through her first six months on the job that an abundance of part-time workers and long-term unemployed, in addition to soft wage growth, suggest labor markets and the broader economy weren't near overheating.
Steven Blitz, chief economist at ITG Investment Research, said he expected Ms. Yellen to revisit these points Friday, to indicate her patience about raising rates. "She doesn't want the market getting too far in front of the Fed," Mr. Blitz said.
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 59.54 points, or 0.35%, to 16979.13. Yields on 10-year Treasury notes rose 0.021 percentage point 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.
Many officials agreed at the meeting that if the jobless rate kept falling more quickly than expected and inflation rises, "it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated," the minutes said.
Since the last meeting, inflation data have softened a touch and the jobless rate ticked up by one-tenth of a percentage point."Some participants viewed the actual and expected progress toward the [Fed's] goals as sufficient to call for a relatively prompt move toward reducing policy accommodation," said the minutes.
Among the Fed's major concerns: The economy's first-quarter contraction, though seemingly temporary, caused uncertainty about the outlook, as did turmoil in the Middle East and Ukraine, persistent weakness in the housing sector and slow-growing household incomes.
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.
"The guidance suggested a later initial increase in the target federal funds rate as well as lower future levels of the funds rate than they judged likely to be appropriate," the minutes said.
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. That is Fed jargon for idle workers.
James Bullard, president of the St. Louis Fed, told The Wall Street Journal in an interview last week he had pushed for removing the word "significant" from that phrase during the July meeting, arguing it overstated the amount of unused capacity.
The minutes suggest he had company: "Many members noted that the characterization of labor market underutilization might have to change before long."
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