WASHINGTON — Just a few months after announcing a campaign to reduce unemployment, Federal Reserve officials are already debating how soon to stop it, reflecting persistent internal divisions about the effort’s value.
At a meeting in December, several members of the Fed’s policy making committee argued that purchases of Treasury securities and mortgage-backed securities should be reduced or ended “well before the end of 2013,” according to an account of the meeting the Fed published Thursday after a customary three-week delay.
The Fed announced after the meeting that it would keep buying assets until the pace of job creation improved substantially, part of an effort to increase the impact of its policies by announcing economic objectives rather than end dates. But the account shows that many members of the 12-person committee continue to think in terms of end dates, partly because they are worried about the potential costs.
The concerns include the potential disruption of financial markets and the delicate balance between encouraging private borrowing and unleashing speculation. Fed officials professed less concern that the purchases could loosen the Fed’s grip on inflation. They noted that inflation remained low, and that they expected it to stay under control.
“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 meeting account said.
The stock market declined after the Fed released the account of its deliberations, suggesting some investors were surprised by the cautious tone, but the drop was modest. The Standard & Poor’s 500-stock index lost 0.21 percent of its value at the close of trading.
Joseph LaVorgna, an economist at Deutsche Bank, said investors had expected the Fed to keep buying “through much, if not all, of this year.” He said investors would now need to watch more closely for evidence that the recovery was gaining strength, which could lead the Fed to curtail its purchases.
“This should significantly amplify the financial market’s sensitivity to upcoming economic data,” Mr. LaVorgna wrote in a note to clients Thursday.
The government will release its monthly jobs report Friday morning.
But Diane Swonk, chief economist at Mesirow Financial, said investors should keep the account in perspective, as a reflection of modest misgivings in the middle of the most aggressive effort the Fed has ever undertaken to stimulate the economy.
The central bank announced after the December meeting that it planned to hold short-term interest rates near zero at least until the unemployment rate fell below 6.5 percent, provided inflation remained under control, and it estimated that the rate would cross that threshold no sooner than mid-2015.
The Fed also plans to maintain for the foreseeable future the vast portfolio of Treasury securities and mortgage-backed securities it has acquired since 2008 to further reduce borrowing costs for businesses and consumers.
And Ms. Swonk said she saw nothing in the account to alter her conviction that the Fed intended to keep adding to that stockpile through the coming year. She said the reservations of some officials had not prevented the new campaign, and would not force an early conclusion, because the basic argument for the purchases remained compelling: the economy is not growing fast enough, too many people remain unemployed, and the rest of government is not helping.
“I think that they would love to be able to stop,” Ms. Swonk said, but given the condition of the economy, “I think there’s still a huge bias toward buying.”
She said that four of the 12 members of the Federal Open Market Committee would be replaced in January, and that two new arrivals — Charles L. Evans, president of the Federal Reserve Bank of Chicago, and Eric S. Rosengren, president of the Federal Reserve Bank of Boston — had been outspoken supporters of asset purchases.
The Fed’s current program of asset purchases began in September with the announcement that it would buy $40 billion in mortgage bonds each month until the outlook for the labor market “improved substantially.”
In December, the Fed said it would also expand its holdings of Treasuries by $45 billion each month, replacing a program in which it acquired that amount of long-term Treasuries each month by selling the same amount of short-term Treasuries, so that the total size of its portfolio remained unchanged.
The account said that a few officials predicted the purchases would need to continue through the end of the year, and a few said it was too soon to make a judgment.
“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 account continued, before concluding, “One member viewed any additional purchases as unwarranted.”
At Meeting, Debate Over Length of Fed Program
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At Meeting, Debate Over Length of Fed Program
