Many Federal Reserve officials are confident enough in the economy's progress to raise interest rates and tighten the money supply earlier than previously indicated, minutes from the central bank's July monetary policy meeting released Wednesday show.
It's a development that could presage conflict between the Fed's "hawks," who are more worried about the negative effects of too much monetary easing and too-high inflation, and its "doves," including Chairwoman Janet Yellen.
Most Fed officials expect that job gains will continue to accelerate and inflation will start rising in 2014. An unspecified but significant number believe that "it might become appropriate to begin removing" monetary stimulus "sooner than they currently anticipated," according to the minutes.
The Fed has previously set the expectation that it will keep short-term interest rates near zero until the middle of 2015. Bond market prices indicate that the first rate hike will come between March and June, while investors polled by CNBC placed the first rise in rate in July.
Wednesday's minutes, which summarize Fed officials' views but do not name individuals, suggest that if the economy continues to add jobs at a relatively high rate — monthly gains have averaged roughly 230,000 in 2014 — the Fed will consider signaling that they will tighten earlier.
Some members of the Fed's monetary policy committee already want to signal an early rate hike, the minutes suggest, and are "increasingly uncomfortable" with the central bank's commitment to hold rates near zero for a "considerable time" after its monthly bond purchases are phased out. The Fed has previously suggested that the bond purchases will be ended in October.
It is widely expected, however, that Yellen will reaffirm her commitment to avoiding withdrawal of monetary stimulus too soon in a scheduled speech Friday at the Federal Reserve Bank of Kansas City's annual monetary policy conference in Jackson Hole, Wyo.