Pressure is building within the U.S. Federal Reserve for officials to move as early as next month to more clearly acknowledge improvements in the U.S. economy and lay the groundwork for the central bank’s first interest rate hike in nearly a decade.
According to some U.S. central bankers and their close advisers, signs of economic resilience and growing anxiety about the risks of holding rates too low for too long have set the stage for an intense debate over rewriting their policy statement.
It is uncertain whether officials will use their upcoming meeting on Sept. 16 and 17 to scrap key parts of the language they have been using to keep rate-hike expectations at bay, but if they do not, October looks like a good bet.
Adding, dropping or adjusting even a few words in the Fed's post-meeting statement is a potentially treacherous task. A miscommunication by the world's most powerful central bank could shock financial markets globally and, in a worst case, reverse the economic recovery it seeks to foster.
At issue is a five-month old pledge from the Fed to keep benchmark rates near zero for a "considerable time" after it shelves an asset-purchase program in October.
Another line that has drawn internal objections is the month-old statement that "significant" slack remains in the labor market, a suggestion that not even strong job growth and a further drop in unemployment will prompt a tightening of policy any time soon.
Aside from an unpredictable market reaction, Fed Chair Janet Yellen will have to contend with a potentially uncooperative world economy that could upend U.S. economic progress.
During the Jackson Hole meetings, central bankers from England, Europe and Japan described how their economies were healing more slowly than expected - and in Europe's case, at risk of slipping backward.
Worse than a bout of inflation, Yellen does not want to raise rates only to have to shift gears if the economy slows. That means any change in language is not likely to mean rate hikes will come earlier or occur faster than currently envisioned.
