Fed minutes: Members divided over more bond buys

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By MARTIN CRUTSINGER, Associated Press

WASHINGTON (AP) — The Federal Reserve isn't about to launch another bond-buying program to boost the economy — at least not anytime soon.

While some Fed officials are open to such a move, according to minutes of the Fed's Jan. 24-25 policy-setting meeting, others believe the economy — which has come to life lately — would need to weaken before taking such action.

The debate took place at a meeting in which the Fed decided to hold its benchmark interest rate at record lows until at least late 2014. One Fed official argued that the central bank might need to consider abandoning that plan to keep inflation low.

"The minutes did not show an urgency to pursue further measures, with the general tone seeming to be one of 'wait-and-see'," said Joshua Shapiro, chief U.S. economist at MFR, Inc. "So, if the economy loses steam, markets will begin to expect further action."

That seems even less likely now after recent data show the economy has picked up since that meeting.

Employers added 243,000 net jobs in January, the most since spring. That helped lower the unemployment rate for the fifth straight month, to 8.3 percent. Car sales are up, as is consumer borrowing. And U.S. factories reported having their best month of growth in five years.

"Given that the incoming economic data since that meeting has only been more positive ... there is now little chance of the Fed launching another round of large-scale asset purchases at the meetings in either March or April," said Paul Ashworth, chief U.S. economist at Capital Economics.

The minutes, which were released Wednesday, show Fed officials expected only modest economic growth in the coming months with only gradual declines in the unemployment rate.

Members cited several factors that could weaken the recovery and warrant more action from the Fed. Among them: a slowdown in economic activity abroad; U.S. budget cuts; further weakness in the already-depressed housing market; less borrowing by consumers; and increased volatility in financial markets because of Europe's debt crisis.

Fed Chairman Ben Bernanke told a Senate panel last week that the declining unemployment rate doesn't capture the plight of millions who have stopped looking for work.

His cautious view suggests the Federal Reserve plans to stick with the three-year time line, even if the unemployment rate continues to gradually decline.

At the January meeting, the central bank for the first time released forecasts for where individual Fed officials expected the key interest rate to be in the future. Those forecasts showed that some members foresee super low rates beyond 2014, while six members saw the increases starting in either 2013 or 2014.

The rate forecasts were an effort to provide more explicit clues about the Fed's plans to give financial markets greater assurances that rates will stay low for some time to come.

The forecasts support a broader Fed effort to make its communications with the public more open.

At the January meeting, the Fed for the first time also adopted an official target for inflation. In a statement of longer-term goals, the Fed said annual increases of 2 percent in an inflation gauge tied to consumer spending would satisfy its mandate to keep inflation low.

Setting an inflation target, a goal of Chairman Ben Bernanke, was approved with one official, board member Daniel Tarullo, abstaining. The minutes said Tarullo abstained "because he questioned the ultimate usefulness" of adopting a Fed statement of long-run goals.

Minutes of the December meeting said some members thought such a statement crafted by a committee might cause more confusion than clarity about the Fed's goals.

The Fed's decision to set a goal of keeping rates unchanged until at least late 2014 was approved on a 9-1 vote. The lone dissenter was Jeffrey Lacker, president of the Atlanta Federal Reserve.

Lacker has expressed concerns in speeches that the Fed's policy of keeping interest rates at ultra-low levels for an extended period could raise the risk of high inflation.

According to the minutes, Lacker suggested that to prevent an increase in inflation pressures, the Fed might be forced into a "pre-emptive tightening" of its policies before the late 2014 target.

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