Some Federal Reserve policymakers viewed the December decision to raise a key interest rate as a "close call" given on-going con

WASHINGTON – Despite the Federal Reserve’s unanimous vote to raise a key interest rate last month, some policymakers viewed their decision as a “close call” because of stubbornly low inflation.

Going forward, officials believed economic conditions would likely justify “only gradual increases” in its benchmark rate, minutes of the Fed’s December meeting released Wednesday showed.

The Fed boosted the rate by a quarter point to a new range of 0.25 per cent to 0.5 per cent in December. It had been at a record low near zero for the past seven years.

The minutes revealed the delicate balancing act that Fed Chair Janet Yellen faces: Some members are still concerned that the recovery from the Great Recession remains fragile with too-low inflation. Others have long pushed for higher rates out of concern that waiting longer would run the risk of inflating dangerous asset bubbles.

The minutes said that Fed officials believed it was appropriate to begin raising rates in December because of the “substantial progress” that had been made in the job market. Unemployment in December stood at a seven-year low of 5 per cent.

Policymakers said they were “reasonably confident” that inflation would eventually move to the Fed’s 2 per cent target. At the same time, they expressed significant concerns that it may remain stuck at low levels, particularly because of further declines in oil prices.

Some officials worried that if the Fed waited longer to raise rates, it could face the prospect of tightening rates too abruptly and disrupting economic activity.

Many private economists believe the central bank will raise rates three or four times in 2016 with some expecting one quarter-point move at every other meeting. The Fed meets eight times a year.

Chris Rupkey, chief financial economist at MUFG Union Bank in New York, said he was still expecting a rate hike of a quarter-point, or 25 basis points, at the Fed’s March meeting.

“Nothing in the minutes suggests that ‘gradual’ does not mean 100 basis points per year for rate hikes,” Rupkey said.

The minutes did not mention a specific number of rate hikes. Instead, they used the word “gradual” to underscore their view that rate hikes will likely unfold slowly.

“Participants saw several reasons why a gradual removal of policy accommodation would likely be appropriate,” the minutes said.

Among the reasons cited: A slow pace for rate hikes would keep interest rates mild enough to further boost the labour market. The gains would then exert upward pressure on inflation, which has stayed below the Fed’s goal of 2 per cent for more than three years.

Gradual rate hikes would also give the Fed time to assess how the economy was adjusting to the rate increase. A “cautious approach” to rate increases would also minimize any risks that the Fed would encounter in the event of an unforeseen economic shock.

In a CNBC interview broadcast Wednesday, Fed Vice Chairman Stanley Fischer said that the possibility of four interest rate increases this year are “numbers in the ballpark” of what the central bank will likely do. But he said, “we don’t know enough now to know how many there will be.”

Fischer described market expectations of just two rate hikes this year “too low.”

The Fed will next meet Jan. 26-27.