By David Harrison 

Federal Reserve officials at their latest meeting anticipated raising short-term interest rates "fairly soon" in light of an improving economy and the possibility that the Trump administration's proposed economic policies could push inflation up faster than anticipated.

Some officials believed it might be appropriate to move "potentially at an upcoming meeting," according to minutes of the Jan. 31-Feb.1 meeting, released Wednesday, which suggest they could consider raising their benchmark federal-funds rate as soon as their next policy meeting March 14-15.

Several policy makers also raised the possibility of moving more aggressively than expected should inflation surge and the unemployment rate fall too much. If that were to happen "the committee might need to raise the federal-funds rate more quickly than most participants currently anticipated to limit the buildup of inflationary pressures," the minutes said.

Fed officials also see "heightened uncertainty" from the Trump administration's plans for tax cuts and spending increases, the minutes show. Still, officials said they "would likely have ample time to respond" if fiscal policy pushed inflation higher than anticipated.

The Fed's rate-setting policy committee voted unanimously at the recent meeting to hold rates steady. The statement released after the meeting offered no hint about whether it was likely to move in March.

Behind closed doors, however, officials were laying the groundwork for raising short-term borrowing costs. After raising rates just once in each of the past two years, some officials were concerned that markets did not believe policy makers in December when they penciled in three quarter-percentage-point rate increases for 2017.

The Fed's communications "might be misunderstood as a commitment to only one or two rate hikes per year," they warned.

Since the meeting, several Fed officials have sounded increasingly willing to raise rates again soon, perhaps as soon as March. Philadelphia Fed President Patrick Harker said Tuesday "I would not take March off the table." Dallas Fed chief Robert Kaplan said earlier this month that the central bank should move "sooner rather than later."

Their willingness to move partly reflects a firming economy, particularly in the weeks since the February statement. The latest jobs report, released Feb. 3, showed employers added 227,000 jobs last month while the labor force participation rate--the share of adults holding or seeking jobs--ticked up to 62.9%. A measure of inflation also moved up to 2.5% on the year in January, the largest annual increase since March 2012. A separate inflation measure, preferred by the Fed, has also been moving up but remains at 1.6% on the year, still shy of the central bank's 2% target.

Fed Chairwoman Janet Yellen suggested the Fed might raise rates as soon as March, without making a commitment to do so, when she told Congress last week a move might be appropriate "at our upcoming meetings."

Officials will see new inflation and employment data before that meeting. If the numbers show continued economic improvement, that could make officials more comfortable with moving next month. Ms. Yellen is scheduled to speak on March 3, an address that will be carefully parsed for clues about the Fed's monetary policy intentions.

The Fed raised the fed-funds rate in December to a range of between 0.5% and 0.75%. The central bank is scheduled to meet seven more times this year.

The minutes also indicate Fed officials expect to start discussing what to do about the central bank's big asset portfolio "at upcoming meetings." Fed officials have said they would like to tackle discussions about the $4.5 trillion portfolio, also known as the balance sheet, this year but they have yet to outline their plans.

Recent comments from Ms. Yellen suggests little hurry to address the balance sheet while the process of raising borrowing costs is still underway.

The Fed chief said last week she would prefer to wait until interest rates have risen further as a "buffer" against any financial volatility that could accompany the process of shrinking the portfolio.

"Once we start running off the balance sheet, it creates some drag and we want to make sure that the economy's robust enough" and officials have enough room to cut rates if needed to respond, she told the House Financial Services Committee Feb.15.

Other officials, however, have shown more willingness to begin that conversation.

Boston Fed President Eric Rosengren, for instance, said Feb. 15 that shrinking the portfolio could help prevent new financial bubbles.

"As the economy starts to do better, particularly if you're worried about some of the financial assets at the longer end of the market getting a little bubbly, that might be a reason to try to remove some of the accommodation that's coming from the large balance sheet," he said.

(END) Dow Jones Newswires

February 22, 2017 14:15 ET (19:15 GMT)