Fed minutes show rate hike debate is heating up

The Federal Reserve’s debate about raising short-term interest rates is heating up.

At their Jan. 27-28 policy meeting, heard from staff economists about the timing of rate increases, refined plans for the mechanics of pushing rates higher and deliberated over their guidance to the public on the rate outlook, according to minutes released Wednesday with the normal three week lag.

Despite all the discussion, central-bank officials provided no new specifics on the big question many investors want answered right now: When are they going to move?

In public comments since the January meeting, several Fed officials have said they want the option to start raising rates at midyear if the economy keeps performing well.

The minutes suggested many Fed officials were inclined to wait as long as they could, but didn’t indicate how long that might be.

Given a choice between moving too soon and risking derailing the recovery, or acting later and risking inflation or a financial bubble, many officials at the meeting said they were inclined to choose the latter, according to the minutes, which don’t identify who said what or held which view.

The fact that officials were even debating the matter in January—before a strong jobs report released by the Labor Department in early February—suggested the timing of the first rate increase was getting closer in their eyes after years of promising rates would stay low. Some policy makers said the Fed was already late in acting.

The Fed has held its benchmark short-term interest rate—called the federal funds rate—near zero since December 2008 to encourage spending, hiring and investment. Once Fed officials are convinced the expansion is strong enough, they will start raising that rate to prevent the economy from overheating.