A resurgent U.S. economy has emerged from a long struggle with high unemployment and weak growth. And the Federal Reserve seems poised to recognize the sustained improvement.
In a statement it will issue after a policy meeting ends Wednesday, the Fed may no longer say it plans to keep a key interest rate near zero for a "considerable time." If so, the Fed would be signaling that it's moving closer to raising rates — eventually.
Yet even if it drops the "considerable time" phrase, few envision any imminent rate hike. Most economists think the Fed will wait until June to raise short-term rates for the first time since it cut them to record lows in 2008 during the financial crisis. And some think that as long as inflation stays below the Fed's target rate of 2 percent, it could wait longer.
Low rates can encourage borrowing and spending and fuel growth. But if left too low for too long, they can accelerate inflation.
"I think the odds are that the Fed will drop the 'considerable time' wording, but I think some people are making more out of that change than they should," said Diane Swonk, chief economist at Mesirow Financial.
Swonk said she thinks that even if that wording is removed, the Fed will stress that the timing of a rate hike will be driven by the economy's performance, not by any preset timetable. If the job market and the economy, led by recent gains in construction, auto purchases and retail sales, keep improving, a rate hike could come sooner. Yet if the economy slows unexpectedly — or if sinking oil prices keep inflation persistently below the Fed's target — it might be delayed.
The debate inside the Fed is pivoting on which of those forces — an improved economy or excessively low inflation — should outweigh the other. Complicating the Fed's decision is that other major central banks — in Europe, Japan and China, for example — are moving in the reverse direction to keep rates down to support slowing economies. When central banks move in opposite directions, they risk causing disruptions in the global flow of capital.
The minutes of the Fed's last two meetings showed that officials discussed changing the "considerable time" language. But some worried that doing so might be misread to mean the first rate increase would come soon. In the end, the phrasing was retained.
Economists say the Fed might be less concerned now about a negative reaction from investors, especially if it stresses that any rate hike would hinge on the economic data.
Some analysts say "considerable time" could be replaced by language that says the Fed will be "patient" in deciding when to raise rates. In recent weeks, several Fed officials have used that word to describe how the Fed will proceed.
The word "patient" has history behind it. The last time the Fed moved from a prolonged period of low rates, it shifted from saying it would keep rates low for a "considerable period" to pledging to be "patient" in raising them. Five months after dropping "considerable period" in January 2004, the Fed approved a rate hike.
Vincent Reinhart, who was the Fed's top staff economist then, said it would be a wrong to assume that the lag time between a change in the statement's language and a rate increase would necessarily be the same this time. Just as was true a decade ago, Reinhart said, the Fed's rate decision would be dictated by the direction of the economy.
He estimated the likelihood that the Fed will drop "considerable time" from its statement this week at 75 percent. But Reinhart doesn't foresee the first rate increase until early 2016.
Among most other economists, the consensus view that the Fed will begin raising rates in June has held steady for months despite slight ups and downs in the economy's performance.
Recently, the data has been almost all positive. Consumer confidence reached a post-recession high in December on the strength of sharply lower oil prices, which are believed to be helping boost holiday shopping. The economy added 321,000 jobs in November, the most in nearly three years. Retail sales surged last month. So did auto sales.
Mark Zandi, chief economist at Moody's Analytics, foresees economic growth of 3.3 percent next year — which would be the best showing since 2005 — up from 2.2 percent expected this year.
David Jones, author of a new book on the Fed's first 100 years, said he thinks a debate will continue to rage between officials who favor a rate increase soon to prevent high inflation and those who argue that with inflation still unusually low, the central bank has room to wait.
On Wednesday, besides issuing a policy statement, the Fed will revise its economic forecasts and Chair Janet Yellen will hold a news conference — an opportunity to explain any policy changes.
Brian Bethune, an economics professor at Tufts University, noted that while job gains have been solid, wage growth remains weak and inflation is slowing, reflecting the plunge in gas prices and a stronger dollar.
"With inflation falling, it just doesn't make any sense to argue that the Fed should accelerate the timing of its first rate hike," Bethune said.