Fed members disagree over when to move on rates, minutes show

Federal Reserve policy makers are split over when to raise interest rates, with some indicating they should move as soon as June, but others prepared to wait much longer, according to the minutes of the Fed open market committee.

All but one member of the powerful committee that sets interest rate policies in the U.S. agreed to remove language that said the Fed would be "patient" in raising rates. They agreed this would allow them to act in reaction to data they collect over the coming few months.

With the economy improving, "they preferred language that would provide the committee with the flexibility to subsequently adjust the target range for the federal funds rate on a meeting-by-meeting basis," the minutes said.

But beyond that they differed widely on timing of a rate hike, according to the minutes, released Wednesday three weeks after the actual meeting.

Two members recommended waiting until 2016, several said June would be best and others wanted to wait until later in the year, as oil prices and the strong U.S. dollar could affect inflation.

The Fed's benchmark interest rate has been near zero since December 2008.

In the statement the Fed issued after the meeting, it signalled it was moving closer to a rate increase by dropping language it had been using since December that it would be "patient" before starting to raise its benchmark rate.

But chair Janet Yellen said she was concerned about a slowing of the U.S. economy early in the year, a labour market not operating at capacity and inflation that wasn't close to its target of two per cent. The minutes show the Fed is focusing on both labour data and inflation in establishing when to raise rates.

"Further improvement in the labour market, a stabilization of energy prices and a leveling out of the foreign-exchange value of the dollar were all seen as helpful in establishing confidence that inflation would turn up," the minutes said.

In a speech two weeks ago in San Francisco, Yellen reiterated that when rate hikes do begin, they are likely to be very gradual.

TD economist Andrew Labelle said in a note to investors that he believes the Fed may wait until September to move on rates. "Since the March meeting, economic data has soured, with the March payrolls a notable miss," he said.

"Nonetheless, U.S. economic fundamentals remain bright and economic growth is set to recover meaningfully as of the second quarter. Once this is fully reflected in the data, the Fed will likely move forward on that first rate hike in September."