WASHINGTON - The Federal Reserve struggled last month over how to convey to investors how fast it will raise short-term interest rates once it increases them from record lows.
The Fed held a previously unannounced March 4 videoconference to debate the issue in advance of its regular March 18-19 meeting, according to minutes, or written records, of the meeting released Wednesday.
One key issue dividing opinion among members of the Federal Open Market Committee, which sets monetary policy for the central bank, was how quickly the job market is rebounding.
"Several participants pointed to a number of factors -- including the low labor-force participation rate and the still-high rates of longer-duration unemployment and of workers employed part time for economic reasons -- as suggesting that there might be considerably more labor market slack than indicated by the unemployment rate alone," the FOMC minutes stated. "A couple of other participants, however, saw reasons to believe that slack was more limited, viewing the decline in the participation rate as primarily reflecting demographic trends with little role for cyclical factors and observing that broader measures of unemployment had registered declines in the past year that were comparable with the decline in the standard measure."
Ian Shepherdson, chief economist with Pantheon Macroeconomics, said in a research note that the range of opinions within the FOMC reflect the mixed data on the health of the job market. Although the unemployment rate, now at 6.7 percent, is falling faster than expected, for example, wage growth is weak.
In the end, the Fed decided on an open-ended approach -- that even after employment and inflation are nearly back to normal levels, short-term rates may need to stay unusually low for a while because the U.S. economy isn't fully healthy.
Investors have been intensely following the Fed's guidance on interest rates. A short-term rate increase would elevate borrowing costs and could hurt stock prices.
Stocks surged following the minutes' release. The Dow Jones industrial average rose 140 points, up 0.9 percent, to 16,397. The S&P 500 and Nasdaq composite index also gained.
"There is little to surprise anyone here -- that is a good thing," said Jeff Kleintop, chief market strategist for brokerage firm LPL Financial. "Especially since the Fed wasn't very transparent last year as it fooled most market participants when it didn't start to taper in September and then when it did in December."