(Adds details on labor market from minutes, market moves)
WASHINGTON May 21 Federal Reserve policymakers last month began to lay groundwork for an eventual retreat from their extraordinarily easy monetary policy with a discussion of the tools they could employ to accomplish the task, with no final decisions taken.
Minutes of the session released on Wednesday said Fed staff presented several approaches to raising short-term interest rates, but said the discussion was simply "prudent planning" and not a sign rate hikes would come any time soon.
The debate over when to exit the Fed's highly accommodative policy and what tools will be most effective is the latest sign the U.S. central bank is preparing to eventually leave behind near-zero rates and trillions of dollars of bond purchases.
"Participants generally agreed that starting to consider the options for normalization at this meeting was prudent, as it would help the (policy-setting) committee to make decisions about approaches to policy normalization and to communicate its plans to the public well before the first steps in normalizing policy become appropriate," the minutes from the April 29-30 Federal Open Market Committee meeting said.
"The committee's discussion of this topic was undertaken as part of prudent planning and did not imply that normalization would necessarily begin sometime soon."
Most investors do not expect the Fed to raise rates until the middle of next year at the earliest, and the minutes did little to change those bets.
The 10-year Treasury note was little changed after the release of the minutes, while U.S. stocks briefly rose to session highs before slipping lower. The U.S. dollar was generally unchanged against the yen and the euro.
"The minutes are kind of sparse. They don't say a lot about the path of monetary policy," said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh.
In addition to discussion of the Fed's exit strategy, the minutes show the length to which participants at the FOMC meeting talked about labor statistics and what the data is saying about inflation and wage pressure.
A number of officials argued there was likely more slack in the labor market than suggested by the nation's 6.3 percent jobless rate, with sluggish wage gains cited as supporting evidence.
Some participants reported labor markets were tight in their districts, with some sectors reporting a shortage of workers.
A number of participants, according to the minutes, were skeptical of recent studies suggesting that long-term unemployment provides less downward pressure on wage and price inflation than short term unemployment.
The minutes also show that one participant suggested that labor market underutilization was dropping in line with the official unemployment rate. (Reporting by Michael Flaherty and Howard Schneider; Additional reporting by Ann Saphir in San Francisco and David Gaffen and Richard Leong in New York; Editing by Tim Ahmann and Paul Simao)