The debate over interest-rate increases is set to intensify atthis week's meeting of Federal Reserve policy makers, even if it isnot expected to yield a clear signal on the timing of the nextmove.

A statement to be published Wednesday at 2 p.m. in Washington atthe conclusion of the rate-setting Federal Open Market Committee's(FOMC's) two-day gathering will probably acknowledge better news onthe economy since the last meeting in mid-June. But it is expectedto fall short of telegraphing that a hike is right around thecorner, and there is no post-meeting press conference with FedChair Janet Yellen to drop further clues.

Last month, FOMC voters unanimously agreed to leave the targetrange for the U.S. central bank's policy rate unchanged at 0.25percent to 0.5 percent amid uncertainty following a sharpdeceleration in U.S. job growth in May and ahead of the Britishreferendum on European Union membership a few days later on June23.

Now, however, with the combination of a strong rebound in theemployment data and stocks at record highs despite U.K. voters'decision to leave the EU, the voices of those in favor of higherrates are likely to come back to the fore.

“It will be contentious,” said Jonathan Wright, an economicsprofessor at Johns Hopkins University in Baltimore and a former Fedeconomist. “There are big differences of opinion.”

FOMC Divided

The committee is divided between those who believe rates need tobe increased this year—and maybe more than once—to reflect momentumin U.S. growth, and those who believe “neutral” rates are so lowthat risk-management considerations dictate a more cautiousapproach, Wright said.

The neutral rate of interest is the level that neither spurs norslows the economy. The FOMC has already lowered its estimate ofwhere the long-run rate lies, to 3 percent in its June quarterlyforecast from 3.75 percent a year earlier. Some officials say itcould be even lower.

Wright expects Kansas City Fed President Esther George, whodissented against decisions in March and April to leave ratesunchanged but endorsed the same decision in June, to resumeadvocating for higher rates this week.

George may have some company in arguing that a move iswarranted. Directors at six of the 12 regional Fed banks voted infavor of a discount rate increase prior to the June 14-15 FOMCmeeting, including St. Louis, Boston, and Cleveland, all of whosepresidents are policy voters in 2016.

The first paragraph of the FOMC's post-meeting statement is mostripe for revision, according to Thomas Costerg, a senior U.S.economist at Standard Chartered Bank in New York.

The June statement noted that “the pace of improvement in thelabor market has slowed” and “job gains have diminished,” but thatwas before a Labor Department report, released July 8, showedemployers added 287,000 workers to payrolls in June following netjob creation of just 11,000 in May.

“The statement will probably show a better characterization ofgrowth on the back of strong retail sales and job growth,” Costergsaid.

Suspense over Fed Statement

Beyond that, the question is whether Fed officials can agree onwhether it's appropriate to nudge investors further in thedirection of anticipating a rate increase at the next FOMC meetingin September, said Ken Matheny, a senior economist at MacroeconomicAdvisers LLC in St. Louis.

While various regional Fed presidents have weighed in on thepolicy debate in recent weeks, Yellen has not spoken publicly sincethe June 15 FOMC press conference. Her next public speech is onAug. 26, at the Kansas City Fed's annual policy retreat in JacksonHole, Wyoming.

Prices of futures contracts linked to the benchmark federalfunds rate suggest the chances of a September hike are roughly onein four.

In April, the FOMC refrained from inserting language into thestatement that would indicate a bias toward an increase at its nextmeeting, even though minutes of the April meeting released threeweeks later showed that some officials believed investors weren'ttaking the possibility seriously.

One way the committee could signal an intent to move would be byproviding an assessment of the balance of risks to the economy.That language was conspicuously dropped by the FOMC from itsJanuary statement after financial-market turmoil and a dimmeroutlook for global growth intensified the headwinds confrontingU.S. job creation and inflation.

“There is a little bit of suspense with the upcoming statement,”Matheny said. “I suspect the committee will be in a roughly similarposition, hesitant to characterize the risks as balanced.”

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