July 12 A debate is intensifying among the
Federal Reserve's regional bank presidents about whether to push
interest rates up from zero sooner than planned because of
recent improvements in the U.S. job market, the Wall Street
Most Fed officials at June's policy meeting didn't see rate
increases until 2015, according to projections made before the
Labor Department reported on July 3 that the jobless rate fell
to 6.1 percent in June, the Journal said in an article posted
late on Friday.
Fed officials hadn't expected unemployment to fall to near
6.1 percent until the end of this year.
"We have made more progress toward our unemployment goals
than we would have thought" earlier this year, San Francisco
Federal Reserve President John Williams told the Journal.
He added that this development "suggests that monetary
policy can safely start the process of normalization a touch
earlier" than previously expected.
He didn't specify when that would be, but has said in the
past he sees the first Fed rate increase in the second half of
2015, the Journal reported.
His comments are notable, the Journal said, because Williams
tends to be in the camp of Fed officials, often called doves,
who want to keep interest rates low, in contrast to the hawks
who consistently call for higher rates to tamp down inflationary
Williams said the shift in his view was not a "game changer"
because he still believes there is "quite a bit" of slack in the
economy holding inflation down, the Journal reported. If the Fed
does start moving rates up sooner, he noted, it wouldn't be
substantially sooner than previously thought.
Meanwhile, Fed hawks are becoming more vocal about wanting
earlier interest-rate increases.
"We need to adjust the language in our statement to reflect
that the economy really is better that it was, and that the
necessity of having zero interest rates for a long time to come
seems to me to be perhaps a risky or unnecessary step at this
point," Philadelphia Fed President Charles Plosser told the
St. Louis Fed President James Bullard has been warning that
market participants might not appreciate how quickly the economy
is converging toward the Fed's goals of maximum employment and
stable prices, the Journal said.
A year ago, Bullard noted, Fed officials thought the jobless
rate would be 7 percent by now and the central bank would be
finished with a massive program of mortgage and Treasury bond
purchases meant to spur hiring and investment.
Instead, the jobless rate is almost a full percentage point
lower than expected and bond purchases haven't been completed.
"Things have moved a little faster than the (Fed
policymaking) committee was anticipating, but our policy hasn't
reacted to that," Bullard told the Journal.
Bullard thinks the Fed should start moving rates up in the
first quarter of 2015 and said he's leaning toward an earlier
projection if he gains confidence the economy has firmly
rebounded from its first-quarter slump, the Journal said.
(Reporting by Eric Beech in Washington; Editing by Paul Simao)