Fed minutes: Lots of talk on bond-buying, no firm conclusions on what’s next for monetary policy

February 20, 2013

Top Fed officials had a wide-ranging discussion last month over their strategy for pumping billions of dollars into the economy in 2013, but reached no firm conclusions on where U.S. monetary policy goes from here, according to minutes of their Jan. 29-30 meeting released Wednesday.

It was the first meeting of the year for the Federal Open Market Committee, an opportunity to judge the (little-changed) economic data from late December and January, and to assess the effects of the Federal Reserves policy changes since that time. At the December FOMC meeting, members had decided to begin buying an extra $45 billion a month in Treasury bonds starting in January, for a total of $85 billion in monthly quantitative easing.

Fed Chairman Ben Bernanke and the Federal Open Market Committee face big decisions on bond purchases. (REUTERS/Yuri Gripas)
Fed Chairman Ben Bernanke and the Federal Open Market Committee face big decisions on bond purchases. (Yuri Gripas -- Reuters)

But while some in the financial markets had hoped the minutes would shed light on how long those purchases will continue, there was little to satisfy. That question had been up for dispute at the December policy meeting, according to the minutes. Might the Fed conclude the program in late 2013, or sooner, or later? On this crucial question, there were more vague hints in the new minutes than clear guidance.

There seemed to be a variety of views around the table about how to proceed with the bond-buying program. One emerging idea was to have the Fed regularly adjust the size of its bond purchases depending on how well the economy is improving.

"Several participants 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," the minutes said.

The minutes underlined the old divisions on the committee, with one wing arguing that the "economic and social costs of high unemployment," and their potential to lower the economy's long-term potential, should be top concerns. (Based on a speech she gave last week, vice chairman Janet Yellen is likely to be among that group.)

The other side, meanwhile, countered that the costs of the Fed continuing to buy bonds on vast scale could start to exceed any economic benefit. "Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of monetary accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability," according to the minutes.

In recent weeks, some Fed officials have made public comments along those lines, including speeches by governor Jeremy Stein and Kansas City Fed president Esther George, fretting about the risks of financial bubbles.

But it seems clear that those disagreements, over how long to keep buying bonds and the costs vs. benefits of prolonging the Fed's monetary easing policy, were not on the verge of being resolved.

"In light of this discussion, the staff was asked for additional analysis ahead of future meetings to support the Committee's ongoing assessment of the asset purchase program," the minutes said.

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Sarah Kliff · February 20, 2013