A fissure appears to be developing at the Federal Reserve over when to raise interest rates: One side is preaching caution in a low-inflation environment while another worries over the price of delaying.
The divide appeared in minutes released from the Federal Open Market Committee's July meeting, when central bank policymakers voted to hold the target rate to a range of 1 percent to 1.25 percent. The summary portrays views that inflation ultimately will get to the Fed's 2 percent target but is clearly not there yet.
"Some participants" who counseled patience expressed "concern about the recent decline in inflation" and said the Fed "could afford to be patient under current circumstances." They "argued against additional adjustments" until the central bank was sure that inflation was on track.
On the other side, more hawkish members "worried about risks arising from a labor market that had already reached full employment and was projected to tighten further." Backing off from a steady diet of rate hikes could cause the Fed to overshoot its employment target and cause financial instability, they said.
However, it's been inflation where the Fed has continued to miss its target. Chair Janet Yellen's preferred measure, the core personal consumption expenditures index, most recently showed a 1.5 percent annualized gain. That has raised concerns over why the Fed is hiking when it remains considerably beneath its objectives.
One area that seemed to draw strong consensus was in the plan to reduce the Fed's $4.5 trillion "balance sheet" of bonds it accrued during three rounds of stimulus that began during the financial crisis.
Members agreed that the process of reducing the balance sheet should begin "relatively soon," with some members arguing for a more concrete date to be set. Fed watchers largely expect the central bank to announce the roll-off at the September meeting and begin shortly thereafter.
Under the program, the Fed will set a cap for how much of the proceeds it receives will roll off each month, and then continue to reinvest the rest.
The disagreement over how quickly to raise rates comes at a critical time for the U.S. economy. Fed officials largely judge the economy strong enough to withstand gradual hikes and the slow-motion balance sheet roll-off, but some economists worry the Fed has waited too long and risks causing a recession.
In their assessment of the economy, FOMC members gave it largely positive remarks, particularly in the areas of employment and household spending. However, the minutes reflect concern over June's weak retail sales and the continuing lack of significant wage increases.
Officials also are less optimistic over getting help from fiscal policy. President Donald Trump's hopes for tax reform and infrastructure spending remain in limbo and had formed the basis for hopes that Washington would begin doing its part to accelerate growth.
"Several participants noted that uncertainty about the course of federal government policy, including in the areas of fiscal policy, trade, and health care, was tending to weigh down firms' spending and hiring plans," the minutes said. "In addition, a few participants suggested that the likelihood of near-term enactment of a fiscal stimulus program had declined further or that the fiscal stimulus likely would be smaller than they previously expected."
The FOMC meets next in September. Traders in the fed funds futures market assign virtually no chance of a rate hike then and about a 50 percent chance of a move before the end of the year.