Fed hike could start at current inflation level: FOMC

Fed: Could hike at current level of core inflation
Fed: Could hike at current level of core inflation   

Inflation wouldn't have to move off its current subdued levels for the Federal Reserve to start hiking rates, according to minutes released Wednesday from its most recent meeting.

The December gathering of Federal Open Market Committee did not produce a rate hike, but some members indicated that conditions are changing. Minutes indicated, however, that using the world "patient" in the statement following the meeting would signal that the Fed wasn't ready to hike for at least the next couple of meetings—a term Chair Janet Yellen told the media afterward indeed meant two.

"Most participants agreed that it would be useful to state that the Committee judges that it can be patient in beginning to normalize the stance of monetary policy; they noted that such language would provide more flexibility to adjust policy in response to incoming information than the previous language, which had tied the beginning of normalization to the end of the asset purchase program," the minutes said.

Wall Street consensus is that the central bank likely will begin raising rates off near-zero levels by midyear, though low inflation levels have driven speculation that it could take even longer.

Some members pushed back, saying the Fed should allow itself even more flexibility to move as economic conditions warranted.

Janet Yellen
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Janet Yellen

"Some participants regarded the revised language as risking an unwarranted concentration of market expectations for the timing of the initial increase in the federal funds rate target on a narrow range of dates around mid-2015, and as not adequately allowing for the possibility that economic conditions might evolve in a way that could call for either an earlier or a later liftoff date," the minutes said.

The release of the minutes Wednesday afternoon had no discernible effect on markets, with stocks maintaining a strong rally and government bond yields mixed.

"The Fed is under really no pressure to do anything," said Michael Cuggino, portfolio manager at Permanent Portfolio Funds. The real fear is aggressive moves or surprises that they feel like they have to move."

Fed officials indicated at the meeting that they at least would need confidence that inflation was moving toward the 2 percent target.

As for the economy, FOMC members saw upside risks, with lower oil prices and labor market improvements providing a lift. Fed officials expect inflation to remain tame, though it sees the current plunge in energy prices as well as a stronger dollar as temporary.

The officials, in fact, saw global weakness as the main threat to continued U.S. economic growth.

Correction: An earlier version misspelled Michael Cuggino's last name.