Here's the crucial disagreement that's splitting the Federal Reserve

The minutes from the July meeting of the Federal Open Market Committee (FOMC) were released today. On the face of it, they don't tell us anything the Fed's press release that month didn't reveal: The FOMC feels the crucial trends — rates of job creation, the return of people to labor force, etc — are all improving at a modest-but-encouraging pace. They anticipate inflation will begin rising in the near future, and they'll begin slowly taking interest rates off the zero lower bound.

But one chunk of the minutes does get at a crucial disagreement amongst the FOMC members:

"Maximum employment" (or "full employment") is where jobs are so plentiful that employers can only gain new workers by outbidding other businesses with higher wage offers. If productivity throughout the economy increases at a slower pace than those bids, inflation will start rising. So the Fed hikes interest rates to keep inflation contained.

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The problem is, while the headline unemployment rate of 5.3 percent is close to what's generally viewed as maximum employment, the other signs aren’t there. Wage growth and the inflation rate are still flat, and the portion of the population that's employed is still below its pre-2008 peak.

In fact, that 2008 peak was below its previous peak before the 2001 recession. So there's an argument in some quarters that not only should the Fed wait for full employment, but it shouldn't raise interest rates even after full employment has been achieved — just let the economy run hot for a while to repair the previous damage.

At any rate, this disagreement — between people who think maximum employment is nigh upon us, and those who think it's still a ways off — is splitting the FOMC itself. It's probably the most important yet under appreciated debate currently going on in economic policy.