The Minutes from the latest Federal Open Market Committee (FOMC) meeting showed that the Fed is quite split on when and why it will be appropriate to tighten monetary policy with interest rate hikes.
Here's the key passage:
Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting. However, others anticipated that the effects of energy price declines and the dollar's appreciation would continue to weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising rates until later in the year, and a couple of participants suggested that the economic outlook likely would not call for liftoff until 2016.
And so basically, we've got FOMC members who think it will be best to raise rates in June, and others willing to wait until March 2016.
Although Fed chair Janet Yellen has not said rate increases would necessarily come at a meeting accompanied by a press conference, few expect the Fed will move without markets hearing from Yellen. This thinking leaves the June, September, December meetings in 2015, as well as the March 2016 meeting, as the most likely candidates for the first rate hike.
The Fed is also split on how it will let the market know what is coming when it decides to raise rates.
With regard to communications about the timing of the first increase in the target range for the federal funds rate, two participants thought that the Committee should seek to signal its policy intentions at the meeting before liftoff appeared likely, but two others judged that doing so would be inconsistent with a meeting-by-meeting approach.
In its March statement, the Fed said that it wouldn't raise rates in April, but left the door open for June. Of course, given that it has been so long since the Fed raised rates, many in markets aren't exactly sure what the Fed signaling its intention to raise rates will look like.
The Fed has continually stressed that it will be "data dependent" in looking to raise rates as it seeks to gain maximum flexibility. And so the question will be how much the recent string of economic data - notably the jobs report which saw fewer jobs created in March than expected - impacts the Fed's thinking going forward.
And so as for what the Fed will definitely, probably, maybe be looking for before raising rates?
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. It was noted that there were no simple criteria for such a judgment, and, in particular, that, in a context of progress toward maximum employment and reasonable confidence that inflation will move back to 2 percent over the medium term, the normalization process could be initiated prior to seeing increases in core price inflation or wage inflation.
So there's that.