WASHINGTON -- Federal Reserve policymakers expressed concern last month that raising interest rates too soon could pour cold water on the U.S. economic recovery, and fretted over the impact of dropping "patient" from the central bank's rate guidance.
The minutes from the Fed's Jan. 27-28 policy-setting meeting, released Wednesday, show officials grappling to square solid U.S. economic growth with the weakness in international markets as well as worrying about falling inflation expectations in the United States.
Fed officials debated the impact that stubbornly low inflation measures were having on the central bank's confidence in moving ahead with the rate hike plan, the minutes from the Federal Open Market Committee meeting showed.
They also noted how China's economic slowdown and tensions in the Middle East and Ukraine posed downside risks to the U.S. economic growth outlook, according to the minutes.
Since early February, bond yields have shot higher, a move that showed investors were getting more comfortable with the expectation that the Fed's initial rate hike would happen in June, on the back of strong economic growth and jobs data.
Bond yields fell after the release of the minutes.
Even though Fed officials agreed that U.S. economic growth was strengthening, the central bank continues to debate whether it can move ahead with raising rates with falling inflation expectations and global turmoil hanging over the country, the minutes showed.
"Several participants saw the continuing weakness of core inflation measures as a concern," the minutes said, detailing the Fed's internal debate over the conflicting signals sent by different measures of inflation expectations.
There's still a lot of slack in the economy ... You have central banks around the world lowering interest rates.
"There's still a lot of slack in the economy ... You have central banks around the world lowering interest rates. I think the Fed just doesn't want to go against that," said Wayne Kaufman, chief market analyst at Phoenix Financial Services. "It sees that the global economy isn't strong enough for rates to go up."
The Fed repeated in January that it would be "patient" in deciding when to raise benchmark borrowing costs from zero and acknowledged a decline in certain inflation measures.
Fed Chair Janet Yellen said in December that being "patient" implies the Fed will not raise rates at least for the next two meetings.
The minutes show that many participants in the policy meeting feared that dropping "patient" -- whenever the time comes -- risks shifting market expectations of a rate hike to an "unduly narrow range of dates."
Fed officials maintained that a decision on when to raise rates would remain dependent on economic data, though how early to move appeared to be the cause for concern.
"Many participants observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions, undermining progress toward the committee's objectives," the minutes said.
-With additional reporting by Jonathan Spicer in New York.