The Federal Reserve's first step in ending its extraordinary and unprecedented experiment in stimulating the American economy seemed clear: raise interest rates. But documents released by the central bank Wednesday afternoon revealed how uncertain officials were over their next move.
The Fed raised its benchmark interest rate in December from virtually zero to between 0.25 to 0.5 percent. At the time, it anticipated hiking four more times this year, but those plans were derailed by slowing global growth and turmoil in financial markets early this year. When the Fed's top officials gathered in Washington in March, they voted not to hike rates again and downgraded their expectations to just two more increases this year.
Yet minutes of that meeting, published Wednesday, show the central bank's leaders were divided over when to move next. According to the documents, several officials argued for raising rates at the Fed's next meeting at the end of this month. Atlanta Fed President Dennis Lockhart, an influential centrist, has since publicly said he could be ready to support such speedy action.
But others pushed for patience and were worried that a rate hike in April "would signal a sense of urgency they did not think appropriate." Wall Street has written off the possibility of an increase this month and does not expect the Fed to move until the end of the year.
In a speech last week, Fed Chair Janet Yellen reiterated the need for caution, citing the central bank's limited ability to respond to an unexpected weakening of the recovery. The minutes of the March meeting show that "many participants" shared this view.
"This asymmetery made it prudent to wait for additional information regarding the underlying strength of economic activity and prospects for inflation before taking another step to reduce policy accomodation," they read.
But a couple of Fed officials warned in March that waiting too long to continue raising rates increases the risk of having to move more aggressively later on, according to the documents, potentially causing even greater financial strain.
The Fed has emphasized that its decision will be "data dependent." If the economy is stronger than expected, it could raise rates more quickly. If it stumbles, the Fed could hold off.
But officials appear divided over how to interpret the data. Some viewed the economy as at or near full employment, pointing to the growth in the nation's work force, the surge in hiring, the drop in the jobless rate, among other factors. But others believed there was still room for improvement and cited weak wage growth, the high number of involuntary part-time workers and the low employment-to-population ratio for Americans in their prime.
Fed officials were similarly split over recent readings on inflation, according to the minutes. Some saw the increases as "consistent with a firming trend," and Fed Vice Chair Stanley Fischer has publicly placed himself in that camp. But other officials believed the gains were "unlikely to be sustained," a view expressed by Yellen.
The Fed also debated the significance of the market volatility early this year. A staff analysis noted that financial conditions had actually eased during the first quarter of the year, but only after significant turbulence. Officials generally agreed that the U.S. economy had proved remarkably resilient and that the strength in consumer spending was offsetting the weakness in exports. But once again, they clashed over what lay ahead.
The minues show several participants felt the turmoil "had not been fully resolved and thus posed ongoing downside risks." But several others highlighted the possibility that the recovery could prove suprisingly strong -- with the implication that could leave the Fed behind the curve.
Since the March meeting, two of the central bank's most stalwart supporters of stimulus have publicly supported two interest rate increases this year -- and warned that Wall Street's expectations are out of line with their own. Investors, however, are still betting the Fed will only move once.