WASHINGTON — Federal Reserve officials struggled last month to assess when economic data might prompt them to raise interest rates from record lows — and how best to convey their intentions to investors.
Minutes of the Fed's Jan. 27-28 meeting released Wednesday suggest that policymakers aren't ready to start raising rates anytime soon, with some expressing concerns about excessively low inflation, lingering weakness in the U.S. job market and economic threats overseas.
The Fed's benchmark interest rate has been near zero since December 2008.
Many officials "observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions," said the minutes, released after the customary three-week delay.
The minutes indicate that policymakers were concerned about dropping the word "patient" to describe how long they were willing to wait, fearing that financial markets might overreact. They also were unable to determine what exactly they needed to see in economic data to begin normalizing monetary policy. What they did agree on was that "it would be difficult to specify in advance an exhaustive list of economic indicators and the values that these indicators would need to take."
On one hand, job growth has been encouraging. The government reported earlier this month that the economy created 257,000 jobs in January, wrapping up the strongest three months for hiring in 17 years. The unemployment rate rose to 5.7 percent, up from 5.6 percent in December, but the increase came for a good reason. People who had become discouraged and dropped out of the labor market resumed looking for work.
The 5.7 percent unemployment rate is close to the Fed's goal of maximum employment, which it pegs currently at 5.2 percent to 5.5 percent unemployment.
But Fed officials noted that wage growth has remained weak even as the unemployment rate has fallen. They also discussed at length their concerns about stubbornly low inflation, which remains below the Fed's 2 percent target. Several officials warned that the credibility of that target could be undermined if they raised rates despite low inflation.
Fed officials outlined various overseas threats to U.S. growth, including a stronger dollar, slowing growth in big economies like China and political tensions in the Middle East and Ukraine.
Many economists believe that the Fed will not start raising rates until June, and recent developments that have pushed inflation even farther below 2 percent have some analysts moving the start of rate hikes even further into the future, possibly September.
A few analysts believe it could be another year until early 2016 before the Fed starts raising rates, especially in light of the fact that the European Central Bank is poised to move in the opposite direction, moving to ease credit conditions further to battle weakness in the European economy.