The minutes of their most recent policy meeting, released Wednesday, show that a group of Fed officials expressed concern that low unemployment could cause inflation to surge and a rate hike was needed, presumably when it meets in December. Another group suggested that no further rate increases were called for in the near term.
Investors, though, have settled around the notion that a December rate hike is all but guaranteed. The latest CME Group survey, based on trading on the direction of the Fed's benchmark rate, places the probability of a December rate hike at 88%.
But some economists express more uncertainty. They think the Fed might not raise rates again this year unless economic reports between now and its Dec. 12-13 meeting show that inflation has begun to edge up toward the Fed's 2% target.
"The Fed is clearly inching closer to pulling the trigger for a third rate hike this year, but that doesn't seal the deal," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. "At the moment, the minutes say several members say the outlook is uncertain."
Earlier this year, Fed officials including chief Janet L. Yellen pointed to transitory factors, such as falling prices for cellphone plans, to help explain why inflation was probably moving further below the Fed's 2% inflation goal. But with undesirably low inflation persisting, she and other officials have recently acknowledged that something more long-lasting may be happening.
The minutes of the Fed's September meeting revealed that the mystery over inflation was a key talking point during the two days of discussions.
"Many participants expressed concern that the low inflation readings this year might reflect not only transitory factors but also the influence of developments that could prove more persistent," the minutes said.
"A few of these participants thought that no further increases in the federal funds rate were called for in the near term," the minutes said.
Another group of Fed officials continued to express concerns that inflation could rebound very quickly, given low unemployment. The jobless rate in September fell to a 16-year low of 4.2%; it was at 4.4% at the time of the Fed's discussions.
This group worried that low unemployment might spark demands for higher wages. Rapidly rising inflation pressures could then cause the Fed to start hiking rates more quickly and run the risk of pushing the economy into a recession.
This group also worried that the low Fed rates could result in bubbles in asset prices such as stocks, leading to financial instability.
The Fed's key interest rate is at a still-low range of 1% to 1.25% after two quarter-point rate hikes this year, in March and June.
2:55 p.m.: This article was updated throughout with additional details from the Fed meeting minutes.