Many on FOMC said more progress needed before slowing QE pace

Many Federal Reserve officials said more progress in the labor market is needed before deciding to slow the pace of asset purchases, according to minutes of their last meeting.

“Most observed that the outlook for the labor market had shown progress” since the-bond buying program began in September, according to the record of the April 30-May 1 gathering released today in Washington. “But many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate.”

Policy makers said May 1 they may accelerate or slow monthly purchases of $40 billion in mortgage securities and $45 billion of Treasuries in response to changes in the labor market and inflation. They also pledged to hold the target interest rate near zero as long as unemployment remains above 6.5% and the outlook for inflation doesn’t exceed 2.5%.

A number of officials said they were willing to taper bond buying as early as the next meeting on June 17-18 if economic reports show “evidence of sufficiently strong and sustained growth,” according to the minutes.

The record gives more detail on a debate within the Fed over how and when to curtail asset purchases that have enlarged its balance sheet to a record $3.35 trillion. The committee led by Chairman Ben S. Bernanke is pressing on with purchases until the outlook for the labor market has “improved substantially.”

The minutes also showed that Fed officials began a review of their exit strategy, which was adopted in June 2011 as they sought to assure investors the central bank had the means to avoid igniting inflation once job growth, wages, and demand started moving up.

Still Valid

While “the broad principles adopted almost two years ago appeared generally still valid,” the minutes showed, the larger balance sheet “suggested a need for greater flexibility.”

Officials disagreed over whether the principles should be formally revised or if they should wait in order to learn more about how the exit might unfold. Bernanke instructed the Fed’s staff to study the issue, the minutes said.

Bernanke earlier today said in testimony to the Joint Economic Committee of Congress that the world’s largest economy remains hampered by high unemployment and government spending cuts, and raising interest rates or reducing asset purchases too soon would endanger the recovery.

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