Fed, uneasy over ‘QE,’ plans bond-buy debate One idea: Hold balance sheet even during exit

Get ready for a rock’ em, sock ‘em debate over quantitative easing in March.

Minutes of the Federal Reserve’s January meeting released Wednesday reveal that many Fed officials are worried about the costs and risks arising from the $85 billion–per–month asset-purchase program. And they all seem to have their own ideas on how to proceed. 

Several Fed officials said the central bank should be prepared to vary the pace of the asset-purchase plan depending on the outlook or how the program was working. One wanted to vary it on a meeting-by-meeting basis. 

One new idea backed by a “number” of Fed officials would have the central bank promising markets that it will not sell its massive holdings of Treasurys and mortgage-backed securities as quickly as the market now expects. Read selected text of Fed meeting minutes.

This could be a substitute for asset purchases, they argued. 

But that was only one of a flurry of proposals.

“The minutes ... show a committee that is far less unified than at any other time in the past few years,” said Millan Mulraine, senior economist at TD Securities.

The Fed said a review of the program had been set for March. Fed Chairman Ben Bernanke will hold a press conference at the end of the two-day meeting on March 20. 

Without the Fed’s unconventional program, the 10-year Treasury would yield 3% or more, according to research published by Goldman Sachs. See related blog post on The Tell.

 

A number of Fed officials said the central bank may have to taper off or end the purchases before reaching the stated goal of a substantial improvement in the labor-market outlook. On the other hand, several Fed officials warned that ending the asset purchases too soon would damage the economy. 

They stressed that it was important to communicate that the Fed would hold to an ultra-easy policy stance as long as warranted by the weak economy. 

One Fed official said that the central bank could adjust the size of the asset-purchase program every meeting.

Some officials said they were worried about the effects of more asset purchases on “the functioning of particular financial markets.” 

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News Source: www.marketwatch.com