Several on FOMC said Fed should be prepared to vary pace of QE

Several Federal Reserve policy makers said the central bank should be ready to vary the pace of their $85 billion in monthly bond purchases amid a debate over the risks and benefits of further quantitative easing.

The officials “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved,” according to the minutes of the Federal Open Market Committee’s Jan. 29-30 meeting released today in Washington.

The minutes showed policy makers were divided about the strategy behind Chairman Ben S. Bernanke’s program of buying bonds until there is “substantial” improvement in a U.S. labor market burdened with 7.9% unemployment, with some saying an earlier end to purchases might be needed, and others warning against a premature withdrawal of stimulus.

The FOMC at its January meeting decided to continue buying $45 billion a month of Treasuries and $40 billion in mortgage- debt without setting a limit on the duration or total size of the purchases. Policy makers also affirmed their pledge to keep the target interest rate near zero “at least as long” as unemployment remains above 6.5% and inflation is projected to be no more than 2.5%.

A number of officials said that their evaluation of costs and benefits of the policy “might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred,” according to the minutes.

‘Substantial Improvement’

“Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in the labor market outlook had occurred,” the minutes showed. The minutes don’t give the names of officials or specify the precise number holding a given view.

With inflation below their long-term goal of 2%, policy makers are forging ahead with record accommodation to stoke an economy that shrank 0.1% last quarter. The Fed has pushed the benchmark interest rate close to zero and expanded its balance sheet to more than $3 trillion.

The minutes said “many participants” expressed concern about “potential costs and risks arising from further asset purchases.” Several discussed “possible complications” that additional purchases could have as the Fed begins to exit the policy, a few mentioned inflation risks, and some mentioned risks to financial stability.

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