WASHINGTON (AP) -- Debate is heating up within the Federal Reserve over how and when to signal that the days of record-low interest rates are numbered.
A rate hike isn't imminent. But at their meeting, which started Tuesday morning, Federal Reserve Chairman Ben Bernanke and his colleagues will likely focus on how to telegraph that higher rates are coming once the economic recovery is more deeply rooted. Eventually, Fed policymakers will need to start bumping up rates to head off inflation.
It will be a challenging maneuver. Fed officials will want to signal a move to higher rates in advance so borrowers and investors aren't jarred. And they will need to send a signal that isn't confusing.
The Fed has held rates at a record low near zero since December 2008. Bernanke and other Fed officials have said low rates are still needed to underpin economic growth.
But they need to decide whether to keep or modify their yearlong pledge to hold rates at record lows for an "extended period." Economists generally think "extended period" means at least six more months.
The Fed could drop that commitment altogether. Or it could pledge to keep rates low only for "some time" or vow to keep "policy accommodative." Or it could change its language in some other way to stress that credit will be tightened when the time is right. Any such step would signal that the days of easy money are fading.
Inside the Fed, debate is intensifying.
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, has pushed to change the signal. At the Fed's last meeting in late January, Hoenig dissented from the "extended period" pledge. He favored saying rates would stay low for "some time." He thought that would give the Fed more flexibility to start raising rates.
Some economists aren't ruling out a change in language at Tuesday's meeting. An afternoon announcement is expected. Others don't think a change will come until the Fed's next meeting on April 27-28.
"During the Depression, the Fed tightened policy too soon and cut off the recovery before it was self-sufficient," said Joel Naroff, president of Naroff Economic Advisors. "The Fed doesn't want to make that mistake again. I think that they are willing to stay with very easy money longer than they might normally because of all the damage that has been done to the economy."
