Fed saw manageable risks of new bond-buying, minutes show

Federal Reserve policy makers said they could change the size of the central bank’s monthly asset purchases to reduce the risks associated with the program, such as disrupting financial markets and spurring inflation.

“Most participants thought these risks could be managed since the committee could make adjustments to its purchases, as needed, in response to economic developments or to changes in its assessment of their efficacy and costs,” according to the record of the Federal Open Market Committee’s Sept. 12-13 gathering released today in Washington.

Fed Chairman Ben S. Bernanke and his policy making colleagues announced the central bank will buy $40 billion a month of mortgage bonds in a third round of quantitative easing. The FOMC aims through its newest phase of record stimulus to spur economic growth and bring down an unemployment rate stuck above 8 percent for 43 months.

The minutes contain a detailed discussion of the costs and benefits of that policy, with a few FOMC participants expressing “skepticism” that the program could help, and several saying that the purchases could “complicate the committee’s efforts to withdraw monetary policy accommodation when it eventually became appropriate to do so.”

Policy makers discussed whether to purchase mortgage-backed securities or Treasury debt with some saying that “all else being equal, MBS purchases could be preferable because they would more directly support the housing sector, which remains weak but has shown some signs of improvement.”

Stocks Rise

The Standard & Poor’s 500 Index maintained gains after the release of the minutes, rising 0.6 percent to 1,460.06 at 2:18 p.m. New York time. The dollar and Treasuries remained lower.

The FOMC in the September statement also extended its guidance for how long its target interest rate will remain near zero. The Fed lowered the rate to a range of zero to 0.25 percent in December and said it’s likely to remain there “at least through mid-2015.”

The Fed didn’t set a total amount or duration for its mortgage-bond purchases while saying in their statement that “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

Bernanke said in an Oct. 1 speech in Indianapolis that forecasting the main interest rate will remain near zero “doesn’t mean that we expect the economy to be weak through” mid-2015.

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