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Fed Debates Interest Rate Policy and Messages

FILE - U.S. Federal Reserve building.

Officials of the U.S. central bank are looking for better ways to tell markets they are not going to raise interest rates abruptly or soon, even though many economic indicators are improving.

When to raise interest rates and how to warn markets that this economic change is on the way was a key part of the debate at September's meeting of top Fed policymakers. Many analysts predict the Fed will begin raising rates to more normal levels in the middle of next year.

Notes from that gathering were published Wednesday after the Fed's customary delay of several weeks.

The U.S. Federal Reserve cut interest rates to record lows during the recession to encourage economic growth. But now, the economy is growing, unemployment has fallen sharply and inflation remains below the 2 percent level many economists say is healthy for the economy.

The minutes of the September 16-17 meeting revealed an underlying concern that expectations of financial markets are slightly out of sync with Fed expectations, and that dropping the current policy language could send unintended signals.

Some Fed officials cited disappointing growth and inflation in the eurozone, while several said "slower economic growth in China or Japan or unanticipated events in the Middle East or Ukraine might pose a similar risk," the minutes show.

Investors and others watch Fed discussions closely, and stock market prices rose shortly after the notes were published. The notes show Fed officials expressing concern that markets might misinterpret the Fed's guidance on interest rates and perhaps cause a panicky sell off of stocks.

Fed officials also worried that slowing growth in other nations might crimp the U.S. recovery, and a strengthening dollar might complicate efforts to move inflation closer to the bank's 2 percent target.

Some information for this report came from Reuters.