A steadily improving economy, despite recent setbacks on employment, was reason enough for the Federal Reserve to stick with its plan to continue tapering its bond purchases.
However, Fed officials are preparing to modify a previous guidance that was supposed to help indicate when the central bank was preparing to raise interest rates, according to a record of its January meeting released Wednesday.
The meeting's minutes show that Fed officials generally agreed they would soon need to scrap the unemployment threshold of 6.5 percent they said would indicate a coming rate increase. What would replace the threshold was up for debate.
At the end of 2012, the Fed said that it believed that when the unemployment rate fell below 6.5 percent, it would be near time for the Fed to raise interest rates for the first time since the financial crisis.
However, the jobless rate has dipped rapidly in the last few months, falling to 6.6 percent. With the Fed only recently beginning to shrink the monthly bond purchases that make up its latest round of "quantitative easing," few expect the Fed to hike rates anytime soon. As such, the Fed is widely expected to abandon that 6.5 percent threshold and potentially replace it with something else.
The minutes do not indicate what the Fed may do next to help inform markets when rates might begin to climb upward, only that a “range of views” was expressed.
Some Fed members wanted a new number, while others simply wanted to detail the factors that would guide Fed policy. Others wanted the Fed to emphasize that financial stability will be an important factor in guiding the central bank, while others said the Fed should highlight inflation in laying out a road map. The Fed next meets in March.
The minutes also indicate that some Fed officials did raise the prospect of hiking rates "relatively soon." Specifically, some officials argued the Fed should raise rates from near-zero by the middle of the year. But others pushed back, arguing the circumstances remained far from normal and that the central bank should continue to provide as much economic support from low rates as possible.
After that January meeting, the Fed agreed to stick with its plan to gradually shrink the size of its monthly bond purchases, even though economic data had shown the job market had grown at a slower pace than expected. In the minutes, Fed officials generally seemed to have a rosy outlook on the economy.
They noted that concern about the labor market, as well as turmoil in emerging markets, needed to be monitored but that overall the economy was poised to continue its moderate expansion in the coming months.
One reason for Fed optimism was the reduced drag from Washington policymakers, because the recently enacted budget and spending packages approved by Congress relieve some of the pressure from sequester cuts.