Fed divided over QE duration: minutes
Federal Reserve policymakers were divided over how long the central bank should continue asset purchases to support the economy, the minutes of their last meeting showed Thursday.
The Federal Open Market Committee, at a December meeting, approved open-ended quantitative easing, but some thought the purchases should continue until the end of 2013 while others thought they should end sooner, according to the minutes.
The FOMC agreed at the meeting to launch a new, open-ended $45 billion a month program of buying longer-term Treasury securities to replace the bond-swap Operation Twist program that was to expire at year-end.
The panel also continued its QE program for mortgage-backed securities at a pace of $40 billion per month, as well as other measures aimed at pushing down long-term interest rates to encourage investment.
The minutes of the December 11-12 meeting highlighted the climate of uncertainty the central bankers saw in the economy and about the effectiveness of their policies.
"While almost all members thought that the asset purchase program begun in September had been effective and supportive of growth, they also generally saw that the benefits of ongoing purchases were uncertain and that the potential costs could rise as the size of the balance sheet increased," the minutes said.
A few of the FOMC members indicated that ongoing asset purchases would likely be needed until about the end of 2013, while a few others did not set a specific timeframe or total for purchases.
"Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet," the minutes said.
One member viewed any additional purchases as "unwarranted."
With risks to price stability subdued, the central bank has focused on the other part of its dual mandate: full employment.
Viewing a slight improvement in economic conditions and the jobs market since the November FOMC meeting, policymakers steered a prudent course amid rising uncertainty at home and abroad.
"Nearly all of the participants judged their current levels of uncertainty about real GDP growth and unemployment to be higher than was the norm during the previous 20 years," the minutes said, citing US fiscal policy and Europe's financial and economic problems.
The dollar jumped on the FOMC minutes, sending the euro down to $1.3060 from $1.3112.
"On balance, the comment regarding slowing or ending asset purchases caught many market participants by surprise and helped send the greenback to fresh session highs across the board," said Omer Esiner of Commonwealth Foreign Exchange.
"Any signs that the Fed intends to slow its current pace of policy accommodation remains broadly supportive of the US dollar."