WASHINGTON A number of Federal Reserve officials think the central bank may have to slow or stop buying bonds before seeing the pickup in hiring the bold program is designed to deliver, according to minutes of the central bank's January policy meeting.
The Fed last month opted to keep buying bonds at an $85 billion monthly pace until it saw a substantial improvement in the labour market outlook, but the minutes released on Wednesday showed clear anxiety over the potential risks of that strategy.
"A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the (policy-setting) committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labour market had occurred," the minutes said.
The U.S. economy braked sharply in the final quarter of 2012 but investors are confident it will rebound this year and Fed officials last month voiced confidence that despite a pause, "the economy remained on a moderate growth path."
The dollar rose, U.S. stocks extended losses and the price of the 30-year Treasury bond moved higher as investors digested the minutes from the central bank's policy-setting Federal Open Market Committee.
"The minutes ... portray a Fed whose thinking on the conduct of monetary policy is constantly evolving, and shows a committee that is far less unified than at any other time in the past few years," Millan Mulraine at TD Securities wrote in a client note.
The minutes said "many" officials voiced concern over the potential costs of further asset purchases, but the hawkish tone of the policymakers who actually said the policy may need to be scaled back was balanced somewhat by a warning about the dangers of ending the bond-buying program prematurely.
"Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant," the Fed said.
The evidence of internal division will heighten investor interest in Fed Chairman Ben Bernanke's biannual testimony on monetary policy to two congressional committees next week.
Most analysts still believe the core voting members of the Federal Open Market Committee, led by Bernanke, firmly back the asset purchase policy.
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In a policy shift late last year, the Fed committed to keeping interest rates near zero until the unemployment rate drops to 6.5 percent, as long as inflation is not forecast to go above 2.5 percent over a one- to two-year horizon.
One policymaker suggested the central bank could lower the unemployment guidepost to 6 percent to provide additional stimulus to the economy.
A number of the officials on the 19-strong committee also floated another suggestion - that the Fed hold on to the bonds it has bought for longer than currently planned to deliver more monetary stimulus, either to supplement or replace the bond purchases.
The Fed has more than tripled the size of its balance sheet since 2008 to around $3 trillion through bold purchases of bonds designed to hold down the cost of long-term borrowing and spur a stronger recovery.
The Fed has said it will reduce the size of its balance sheet when the time comes to tighten monetary policy. The central bank will use its March meeting to review the language it has used in its post-meeting statements pertaining to the possible costs of unconventional policy, the minutes said.
In an interview with Reuters on Tuesday, Atlanta Federal Reserve Bank President Dennis Lockhart said the Fed's ultra-loose policy stance is still justified.
"I would not say at this point that, in any respect, the costs, which are largely longer-term and speculative, outweigh the benefits of maintaining a highly accommodative climate," he said.
(Reporting by Alister Bull and Pedro da Costa; Editing by Neil Stempleman and Tim Ahmann)