Fed's Doves Speaking Up

Updated from 2:26 p.m. EDT

A debate is brewing at the Federal Reserve about whether monetary policy is at risk of becoming too restrictive, minutes of the policymaking Federal Open Market Committee's March 27 and 28 meeting showed Tuesday.

Fed members generally agree that after 15 consecutive quarter-point rate hikes, rates are nearing a neutral level and should now be determined by the character of incoming economic data, the notes showed. But among the Fed's voting members, the level of comfort with the prospect of future tightening seems uneven.

"Most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy," the minutes read. "However, members also recognized that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance."

Moreover, the minutes suggest that some members are leery of spooking financial markets with too-hawkish a tone. "Several members were concerned that market participants might not fully appreciate the extent to which future policy action will depend on incoming economic data, especially when an end to the tightening process seems likely to be near," the notes read.

Regarding the policy statement released at the conclusion of the meeting, "Some members expressed concern that retention of the phrase 'some further policy firming may be needed to keep the risks...roughly in balance' could be misconstrued as suggesting that the committee thought that several further tightening steps were likely to be necessary," the minutes showed.

The sentiment is similar to arguments voiced earlier Tuesday by San Francisco Fed President Janet Yellen, who said in a speech that she plans to be "highly alert to the possibility of the policy tightening going too far." Yellen played down the likelihood of labor or commodity inflation seeping into the larger economy and said current rate policy is close to neutral.