The continued debate about the weakness of inflation has divided officials into two broad camps. Most, including Ms. Yellen, regard slow inflation as somewhat mysterious but not a cause for great concern because they expect tightening labor market conditions to eventually drive up prices. As a result, they want to keep raising interest rates at a gradual pace.
The unemployment rate fell to 4.1 percent in October and the pace of job growth remains strong. The account described it as “well above the pace likely to be sustainable in the longer run.”
A minority of Fed officials, however, have become increasingly forceful in registering their concerns. Those officials are more worried about moving too fast than too slow. They fear that the persistence of sluggish inflation could damage the economy, for example, by permanently eroding public expectations about the future pace of inflation.
The minutes said that some of those officials are reluctant to vote for additional rate increases until they are convinced that inflation is indeed gaining strength.
The officials “indicated that their decision about whether to increase the target range in the near term would depend importantly on whether the upcoming economic data boosted their confidence that inflation was headed toward the Committee’s objective.”
Some Fed officials also want to raise rates because they are concerned that financial market conditions have not tightened adequately this year, meaning credit is easier and cheaper to get than the Fed would have anticipated. The Fed raises its benchmark rate to make it more difficult to borrow money. But the rates on consumer and business loans have not climbed in response, prompting worries that investors are taking excessive risks.
Fed officials also want to stockpile ammunition against future economic downturns. The Fed’s primary medicine for weak growth is cutting rates, which it can do only if it has a high enough rate to cut from.
The minutes described the program to reduce the Fed’s bond holdings as off to a good start. The Fed had announced in September that it would begin to reduce those holdings by $10 billion a month during the final quarter of 2017, a show of confidence in the health of the economy. It plans to slowly increase the pace until it reaches a monthly rate of $50 billion. On the current schedule, it will arrive at that plateau in October 2018.
The Fed has said that it intended to stick to its schedule barring significant economic disruptions, and to underscore that the unwinding is on autopilot, it may stop providing updates in its post-meeting statements.
Expectations about the course of monetary policy have held steady even as the Fed prepares for a change in leadership. President Trump announced earlier this month that he would nominate Jerome H. Powell as the next Fed chairman. If he is confirmed by the Senate, Mr. Powell would replace Ms. Yellen in early February.
Mr. Powell, a Fed governor, has consistently supported the gradual unwinding the Fed’s stimulus campaign. The Senate Banking Committee has scheduled a confirmation hearing on Tuesday. Ms. Yellen is also scheduled to testify before the Joint Economic Committee on Wednesday.
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