Although Fed officials remain divided in their assessment of the labor market, the minutes from the last policy meeting, released Wednesday, reflected a growing acknowledgment of the recent progress in the employment situation as well as the rise in inflation.
Those points were reiterated in the last Fed meeting three weeks ago, but the minutes said that "many" policy members noted the characterization of the labor market may have to "change before long." Some of these members are concerned the Fed will wait too long before raising rates, and thus sending inflation shooting higher.
Inflation has been subdued for years, although recent data have shown it moving up closer to the Fed's 2% target.
Paul Dales, an economist at Capital Economics, said the minutes reinforced his view the first rate hike would take place in March, three months earlier than the consensus view on Wall Street.
It sounds as if the Fed is increasingly thinking that "slack is disappearing," said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi in New York. "Change is in the air," he said, adding Yellen may give further signals of this in a speech Friday at an annual central bankers' conference in Jackson Hole, Wyo.
The Fed has kept its benchmark short-term interest rate, which has a broad influence on the cost of borrowing for businesses and consumers, at near zero since late 2008. Recent Fed policy statements have said it expects to keep the so-called federal funds rate at rock bottom for a "considerable time" after it completely winds down a bond-buying stimulus program, expected in October.
The minutes said, however, that "some" participants were "increasingly uncomfortable with the committee's forward guidance. In their view, the guidance suggested a later initial increase in the target federal funds rate as well as lower future levels of the funds rate than they judged likely to be appropriate."
Even so, the minutes indicated that "most" participants wanted to wait for further data on the economy, labor market and inflation, before issuing a change in their guidance for when people might expect the first rate increase.