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 Other Fed policymakers argued that inflation should rebound,
allowing the Fed to soon lift rates from near zero though probably
proceed gradually after that.
In New York, William Dudley said: "I see the risks right now of
moving too quickly versus moving too slowly as nearly balanced."
Dudley, who as president of the New York Fed has a permanent vote on
the Fed's policy-setting committee, said the decision still required
the central bank to "think carefully" because of the risk that the
United States is facing chronically slower growth and low inflation
that would justify continued low rates.
But his assessment of "nearly balanced" risks represents a subtle
shift in the thinking of a Fed member who has been hesitant to
commit to a rate hike, but now sees evidence accumulating in favor
of one. For much of Janet Yellen's tenure as Fed chair, policymakers
at the core of the committee, and Yellen herself, have said they
would rather delay a rate hike and battle inflation than hike too
soon and brake the recovery.
But Dudley said the current 5 percent unemployment rate "could fall
to an unsustainably low level" that threatens inflation, while seven
years of near-zero rates "may be distorting financial markets."
"I don't favor waiting until I sort of see the whites in inflation's
eyes," he said about monetary policy timing. Going sooner and more
slowly, he said at the Economic Club of New York, may now be best
for the Fed's "risk management."
In Washington, Fed Vice Chair Stanley Fischer said inflation should
rebound next year to about 1.5 percent, from 1.3 percent now, as
pressures related to the strong dollar and low energy prices fade.
The second-in-command also noted that the Fed could move next month
to raise rates, which could be taken as yet another signal the
central bank is less willing to let low inflation further delay
policy tightening.
"While the dollar's appreciation and foreign weakness have been a
sizable shock, the U.S. economy appears to be weathering them
reasonably well," Fischer told a conference of researchers and
market participants at the Fed Board.
The U.S. dollar has risen about 15 percent since mid-2015 as the Fed
started its long march to a rate hike, as other major central banks
added stimulus, and as investors crowded into U.S.-denominated
assets in the face of slowdowns elsewhere.
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The stronger dollar has helped depress the Fed's preferred inflation
measure, which at 1.3 percent is below a 2-percent target.
Elsewhere in the capital, two regional Fed bank presidents who had
already backed a rate hike repeated their calls for the Fed to move.
St. Louis Fed President James Bullard and Richmond Fed President
Jeffrey Lacker also said they agreed with broad consensus at the Fed
that rates would move slowly after the initial "liftoff."
"The committee has been very clear that the normalization path here
is going to be shallower," than the steady quarter-point-per-meeting
hikes used by the Fed early this century or the faster hikes enacted
in the early 1990s, said Bullard, who is not a voter on the Fed's
policy-making committee this year but will rotate into a slot in
2016.
A cautionary note came from Chicago Fed President Charles Evans, who
worries any rate increase could damage the recovery and put the
United States in the same difficult position Europe and others found
themselves in when they tried to raise rates at a time when the rest
of the world was holding them down.
"We have had different points in time since the downturn where
certain regions of the world thought they could delink against the
rest of the world. There’s often a trail of tears that follows that
hope that their own area is stronger. That makes me nervous," Evans
said in Chicago.
(Additional reporting by Ann Saphir in Chicago, Rodrigo Campos in
New York and Lindsay Dunsmuir and Jonathan Spicer in Washington;
Editing by Andrea Ricci and Diane Craft)
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