Newspaper article International New York Times

Fed Insiders Increasingly Voice Fears of Inflation ; Small but Loud Minority Say Bank Has Exhausted Ability to Help Economy

Newspaper article International New York Times

Fed Insiders Increasingly Voice Fears of Inflation ; Small but Loud Minority Say Bank Has Exhausted Ability to Help Economy

Article excerpt

The group believes the Federal Reserve has nearly exhausted its ability to repair damage caused by the recession.

An increasingly vocal minority of Federal Reserve officials want the central bank to retreat more quickly from its stimulus campaign, arguing that the bank has largely exhausted its ability to improve economic conditions.

The debate, reflected in an account of the Fed's most recent policy-making meeting published on Wednesday, seemed likely to dominate the gathering of central bankers and economists at Jackson Hole, Wyo., that began Thursday and will last through Saturday.

Fed officials are convinced that the economy is gaining strength after the years of false starts, but a majority of policy makers, led by the chairwoman, Janet L. Yellen, favor a slow retreat from the Fed's efforts to encourage job creation. They note that millions of people still cannot find jobs, while inflation remains relatively weak.

At the July meeting, however, a number of officials described a growing risk that the Fed's control of inflation was being loosened by its focus on job creation. They noted that the economy had improved more quickly than expected in recent months. The remaining damage caused by the last recession, in this view, can no longer be repaired by keeping interest rates low through the Fed's primary policy tool.

"Participants generally agreed that both the recent improvement in labor market conditions and the cumulative progress over the past year had been greater than anticipated and that labor market conditions had moved noticeably closer to those viewed as normal in the longer run," according to the account, released after a standard three-week delay. "Participants differed, however, in their assessments of the remaining degree of labor market slack and how to measure it."

Some analysts saw evidence that the Fed's internal critics were exerting growing influence over the course of policy, suggesting that the Fed was becoming a little more likely to raise interest rates before the middle of 2015, now considered the most likely time for the Fed to begin raising rates from the near-zero level it has maintained since late 2008. …

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