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

Large Portfolio

“Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound,” the minutes said. “Others pointed to offsetting factors, and one noted that losses would not impede the effective operation of monetary policy.”

Growth in the world’s largest economy unexpectedly stalled in the last three months of 2012 as inventories grew at a slower pace and military outlays plunged by the most in 40 years.

The FOMC said in a statement after its meeting last month that “growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors.” The committee predicted the expansion will proceed at a “moderate pace.”

The recovery in housing -- the industry at the heart of the financial crisis last decade -- shows signs of momentum. Builders broke ground last month on the most U.S. single-family homes in more than four years, with starts of one-family homes rising 613,000, up 0.8 percent from December, Commerce Department figures showed today.

Rail Carrier

The housing rebound is spurring companies in other industries, including CSX Corp., the largest East Coast rail carrier. The company estimates 5% to 6% of its volume is “indirectly or directly tied to the housing market,” said Fredrik Eliasson, chief financial officer. “As we see that market continue to recover, we expect to see benefits,” he said during a Feb. 14 conference.

Higher property values and stocks at five-year highs helped push consumer confidence this month to a three-month high. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 76.3 this month from 73.8 in January.

Also, claims for jobless benefits plunged in the week ended Feb. 9, showing employers have little need to trim staff as demand improves. Applications for unemployment insurance payments decreased by 27,000 to 341,000, fewer than any of the 49 economists surveyed by Bloomberg projected, according to Labor Department data.

Consumer Spending

The brighter labor picture is helping to underpin consumer spending. Retail sales rose 0.1% in January after 0.5% increases in each of the prior two months, according to Commerce Department data released last week.

At the same time, “with unemployment at almost 8%, we are still far from the fully healthy and vibrant conditions that we would like to see,” Bernanke said last week at a meeting in Moscow of his counterparts from the Group of 20.

The economy will grow 1.8% this year, according to the median estimate in a Bloomberg survey of economists. That will be too weak for much progress in the unemployment rate, which will average 7.7% this year, according to the survey.

Stocks and bond yields have risen on prospects for a continued economic expansion. The Standard & Poor’s 500 Index has increased 6.8% this year, hitting a five-year high of 1,530.94 on Feb. 19. The yield on the 10-year Treasury note fell 0.1%, to 2.01%, at 1:35 p.m. in New York trading. The yield has risen from 1.72% since the Fed announced new bond buying on Sept. 13.

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