NASHVILLE (REUTERS) - US Federal Reserve policymakers appeared deeply divided on Saturday (Sept 19) over how seriously problems in the world economy will effect the United States, a fracture that may be difficult for Fed chairman Janet Yellen to mend as she guides the central bank's debate over whether to hike interest rates.
Though last week's decision to again delay an interest rate increase was near-unanimous, drawing only one dissent, St Louis Fed president James Bullard said he argued against last week's decision and felt other policymakers had not made a compelling case for yet again holding off.
Mr Bullard does not currently vote on the Fed's policy-setting committee and thus could not join Richmond Fed chief Jeffrey Lacker in dissenting from the decision to hold rates near zero for at least another six weeks.
But he was sharply critical of the decision in remarks to a community banking group here, saying the US central bank had paid too much attention to recent financial market gyrations.
Rather than clarify the Fed's direction, Mr Bullard said last week's decision seemed to increase uncertainty about the direction of the US economy.
Markets sold off sharply this summer over concerns about a slowdown in China and weak world growth, leaving Fed officials to vet whether that reflected a short-term correction or more fundamental problems on the horizon.
"Financial markets tend to wax and wane, sometimes suddenly. Monetary policy needs to be more stable," said Mr Bullard, who in prepared remarks here to the Community Bankers Association of Illinois said he did not think the Fed "provided a satisfactory answer" to why rates should stay near zero.
The economy is near full employment, and inflation will almost certainly rise, he said, leaving the Fed's near seven-year stay at near zero rates out of line with the broad economic picture.
However at least for now the Fed set aside such concerns out of deference to a different worry: that a weak global economy may pull down the US. Specifically Fed officials, including Ms Yellen, said a dip in measures of inflation expectations was worrisome if it proves to reflect eroding confidence in the recovery.
The expectations of businesses and consumers about inflation is thought to play an important role in the actual pace of price increases, as well as in decisions about savings, investment and consumption that are central to economic growth.
San Francisco Fed president John Williams in remarks on Saturday laid out the case for caution, and suggested he and others now want more proof before a rate hike. Mr Williams said he still expects rates will rise this year as the "disinflationary" impact of low oil prices and other outside influences fades, and the US economy continues to expand.
Still, "getting some more clarity around what is really happening in the global economy, how is that affecting the US economy, and also seeing continued progress in the US economy - these are all things I'm watching", he told reporters when asked about a possible rate rise in October.
Mr Williams, who is among the regional bank presidents who does vote on interest rates this year, declined to specify whether he sees October or December as the appropriate time to go.
The Fed next meets in October and again in December.
Thirteen of 17 Fed members last week said they still expect to hike rates this year.