| NASHVILLE, Tenn. Sept 19
NASHVILLE, Tenn. Sept 19 Federal Reserve
policymakers appeared deeply divided on Saturday over how
seriously problems in the world economy will effect the U.S., a
fracture that may be difficult for Fed Chair Janet Yellen to
mend as she guides the central bank's debate over whether to
hike interest rates.
Though last week's decision to again delay an interest rate
increase was near-unanimous, drawing only one dissent, St. Louis
Fed President James Bullard called the session "pressure-packed"
as members debated whether global uncertainty or the continued
strength of the U.S. economy deserved more attention.
In the end the committee felt that tepid global demand, a
possible weakening of inflation measures, and recent market
volatility warranted waiting to see how that might impact the
Bullard, who does not have a vote this year on the Fed's
main policy-setting committee, said he would have joined
Richmond Fed President Jeffrey Lacker's dissent, and worried the
central bank had paid too much attention to recent financial
Markets sold off sharply this summer over concerns about a
slowdown in China and weak world growth, leaving Fed officials
to vet whether that reflected a short-term correction or more
fundamental problems on the horizon.
"Financial markets tend to wax and wane, sometimes suddenly.
Monetary policy needs to be more stable," said Bullard, who in
prepared remarks here to the Community Bankers Association of
Illinois said he did not think the Fed "provided a satisfactory
answer" to why rates should stay near zero.
The economy is near full employment, and inflation will
almost certainly rise, Bullard said, leaving the Fed's near
seven-year stay at near zero rates out of line with the broad
In a statement Lacker said he felt the current low rates
"are unlikely to be appropriate for an economy with persistently
strong consumption growth and tightening labor markets."
However at least for now the Fed set aside such concerns out
of deference to a different worry: that a weak global economy
may pull down the U.S. Specifically Fed officials, including
Yellen, said a dip in measures of inflation expectations was
worrisome if it proves to reflect eroding confidence in the
The expectations of businesses and consumers about inflation
is thought to play an important role in the actual pace of price
increases, as well as in decisions about savings, investment and
consumption that are central to economic growth.
San Francisco Fed President John Williams in remarks on
Saturday laid out the case for caution, and suggested he and
others now want more proof before a rate hike. Williams said he
still expects rates will rise this year as the "disinflationary"
impact of low oil prices and other outside influences fades, and
the U.S. economy continues to expand.
Still, "getting some more clarity around what is really
happening in the global economy, how is that affecting the U.S.
economy, and also seeing continued progress in the U.S. economy
-- these are all things I'm watching," Williams told reporters
when asked about a possible rate rise in October.
Williams, who is among the regional bank presidents who does
vote on interest rates this year, declined to specify whether he
sees October or December as the appropriate time to go.
The Fed next meets in October and again in December.
Thirteen of 17 Fed members last week said they still expect
to hike rates this year.
(Reporting by Howard Schneider and Jonathan Spicer; Additional
reporting by Jason Lange; Editing by Diane Craft)