Fed Chairwoman Janet Yellen set markets abuzz last month when she said running a "high-pressure economy" might help undo some of the economic damage wrought by the Great Recession.
Some investors wondered whether she meant the Fed was now seeking to push inflation above its 2% target. Her remarks came the same day Bank of England Gov. Mark Carney said the central bank was willing to let inflation temporarily overshoot its 2% goal to prevent the jobless rate from rising sharply, and three weeks after the Bank of Japan said it would aim to exceed its 2% inflation target.
But Ms. Yellen wasn't suggesting the Fed follow suit, nor do the central bank's projections imply a similar strategy.
She effectively expressed sympathy for the idea of letting short-term interest rates and the jobless rate stay low for a while to explore the costs and benefits to the economy. That would cause inflation to accelerate, but not rise above 2%, according to the Fed's forecast. Inflation has run below that level for more than four years.
Her remarks reflect the debate Fed officials are having at their two-day meeting, which concludes Wednesday. They are likely to leave their benchmark federal-funds rate unchanged in a range between 0.25% and 0.5% and signal they could raise it next month.
Some officials argue for keeping rates low and letting the jobless rate, which was 5% in September, fall further in hopes of generating more jobs and economic gains for people who are only just starting to benefit from the expansion, including African-Americans and Hispanics.
Others say the Fed should have raised rates already, warning that letting unemployment fall too low could lead to a surge in prices that forces the Fed to raise rates quickly, in turn causing a recession. These officials say this could hurt the very people their colleagues aim to help.
Fed officials' projections show they are running a mild version of a high-pressure economy. They expect the unemployment rate to drop over the next few years below 4.8%, which many of them believe is the level -- called full employment -- below which inflation picks up. They see it falling as low as 4.5% by the end of 2018. In theory, that could draw more workers back into the labor force and boost business investment.
The jobless rate has held steady around 5% for much of this year despite strong job growth, while the share of Americans who have a job or are seeking one has edged up in recent months. And the unemployment rate for African-Americans has fallen to 8.3% in September from 9.2% a year earlier.
Meantime, Fed projections show officials expect inflation to rise to 2% by 2018 and stay there through 2019 and in the long run.
"We don't want the economy to overheat and significantly overshoot our 2% inflation objective," Ms. Yellen said at a news conference following the Fed's Sept. 21 policy meeting.
She said none of her colleagues want to relive the 1970s, when low unemployment eventually led to several bouts of runaway inflation, followed by severe recessions. "We're not going to make that mistake again," she said.
Fed officials don't know exactly how low the jobless rate can go before inflation picks up too much. If they allow unemployment to fall to 4.5% and inflation doesn't start to pick up, they will have learned that they might be able to let it decline further without spurring inflation.
San Francisco Fed President John Williams said last week he has no problem running the economy "somewhat hot," and said it wouldn't be unexpected or problematic for inflation to slightly exceed the 2% target. However, aside from Chicago Fed President Charles Evans, who has said inflation should be above 2% half the time and below it half the time, no Fed officials are calling for an inflation overshoot.
"This idea that we're going to purposefully overshoot and maybe try to make up for lost ground for the fact that we were missing [the target] for a number of years, that's a different strategy," Mr. Williams said.
That strategy could have advantages, he said, but it isn't the one Fed officials are pursuing.
Jon Hilsenrath contributed to this article.