Fed officials split over June rate rise

Federal Reserve policy makers were split several ways over the right moment to start lifting rates at their latest meeting, with some advocating a move as soon as June while others suggested waiting until later this year or into 2016.

Minutes from the March rate-setting meeting noted that "several" members of the Federal Open Market Committee expected a move to be merited in June given the improved economic outlook.

However others expected falling energy prices and the higher dollar to keep weighing on inflation, pushing them towards a first move later this year, and two members advocated waiting until 2016.

The divisions point to uncertainty on the committee over how to interpret conflicting evidence about the strength of the recovery and the inflation outlook, amid softer first-quarter growth and low inflation coupled with robust job market gains. The meeting happened before a weaker-than-expected set of payroll figures on Friday of last week.

"Participants expressed a range of views about how they would assess the outlook for inflation and when they might deem it appropriate to begin removing policy accommodation," the minutes noted.

The Fed in the meeting dropped its pledge to be "patient" before lifting rates, a move backed by almost all FOMC members. The decision opened the door to a move at some point this year.

However FOMC participants also marked down their growth, inflation and interest-rate forecasts, prompting traders to speculate that the odds of a move in June had receded.

Janet Yellen, the Fed chairwoman, subsequently said rate rises are likely to happen at a gradual pace as the headwinds from the financial crisis dissipate slowly.

In the March meeting members said household spending had slowed in recent weeks, but some stressed this was due to "transitory factors" such as cold weather and that consumer spending was likely to be supported by the strong labour market and rising income, as well as improved wealth and lower petrol prices.

The FOMC noted "broad-based" improvements in the labour market, even as many members still judged there was slack remaining in the economy. Some said a continuation of modest wage growth could prompt them to reduce their estimates of the longer-run normal rate of unemployment. In their discussion of the foreign outlook, several FOMC members said the high dollar was likely to restrain exports and the growth "for a time".

In the meeting the committee discussed the factors that would dictate their judgment about the timing of the first rate move. "Further improvement in the labour market, a stabilisation of energy prices, and a levelling out of the foreign exchange value of the dollar were all seen as helpful in establishing confidence that inflation would turn up," the committee said.

A move could start before there were increases in core price inflation or wage inflation, the members said. Many judged that inflation data were in line with their expectations that it would head back towards the 2 per cent target over the medium term.

However FOMC members were divided over whether they should telegraph the exact timing of the first move ahead of time. Two participants said the FOMC should signal its intentions in the meeting before "lift-off" appeared likely, whereas two others said this would jar with the committee's desire to make decisions on a meeting-by-meeting basis.

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