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Fed policymakers concerned about QE: minutes

The US Federal Reserve building in Washington, DC on April 2, 2009
The US Federal Reserve building in Washington, DC on April 2, 2009. Massive Federal Reserve asset purchases are worrying its policymakers, with some wanting to wind them down before the jobs market heals significantly, according to official minutes releas

Massive Federal Reserve asset purchases are worrying its policymakers, with some wanting to wind them down before the jobs market heals significantly, according to official minutes released Wednesday.

Minutes of the January 29-30 Federal Open Market Committee monetary policy meeting showed the asset purchases, known as quantitative easing, were under some pressure to be scaled back.

Yet recent economic data and looming across-the-board government spending cuts suggest the feeble economy would not be strong enough for the Fed to ease its ultra-loose monetary policy anytime soon.

The QE debate first surfaced in the minutes of the December FOMC meeting, when the panel agreed to launch an open-ended $45 billion a month program of buying longer-term Treasury securities and continued its $40 billion per month purchases of mortgage-backed securities.

At their January meeting, the FOMC agreed to continue the $85 billion QE program until the labor market improves "substantially" in a context of price stability around 2.0 percent.

The QE programs are in addition to the more than $2.4 trillion in liquidity the Fed has injected into the economy since the 2008 financial crisis.

The minutes of the FOMC meeting said that "many participants... expressed some concerns about potential costs and risks arising from further asset purchases."

A "number" of participants said that an ongoing evaluation of the efficacy, costs, and risks of asset purchases "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."

The US unemployment rate is 7.9 percent, well above the 6.5 percent threshold the Fed has marked as a factor in any future tightening of the reins of monetary policy.

The discussion of a potential Fed monetary tightening proved bullish for the dollar. About 10 minutes after the FOMC minutes were released the euro was down to $1.3286, compared with $1.3390 late Tuesday.

The minutes "sounded a surprisingly hawkish tone," said Omer Esiner of Commonwealth Foreign Exchange.

Wall Street stocks tumbled after the minutes were published, leaving the broad-market S&P 500 index down more than 1.0 percent in late-session trade.

Still, "most" Fed officials said the asset purchases had been "effective in easing financial conditions and helping stimulate economic activity," the minutes said.

However, some had mentioned the potential for inflationary risks and risks to financial markets, as well as the risk that further asset purchases "could foster market behavior that could undermine financial stability."

A review of the asset purchases was planned for the March 19-20 FOMC meeting.

"The minutes of the past two FOMC meetings have been less dovish than the outcome of the meeting," said Ryan Sweet of Moody's Analytics.

"This likely reflects the wide range of views on the committee. Though a consensus is lacking, there are few signs in the minutes that a shift in monetary policy is about to occur."

Steven Ricchiuto of Mizuho Securities USA said the discussion of their eventual exit strategy "reflects the Committee's underlying discomfort with being involved with non-conventional policy.

"Unfortunately, the data is not consistent with them exiting QE."

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