Fed may not curtail stimulus despite rising doubts
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US Federal Reserve officials are likely to press on with their bond-buying stimulus programme even though some harbor growing concerns the purchases could fuel an asset bubble or inflation if pushed too far.
A full-throated debate among US central bankers over the wisdom of ongoing quantitative easing, or QE, sent US stock prices down sharply when minutes of the meeting were released on Wednesday.
Investors were right to assume the Fed is treading more carefully as it weighs the risks of its effort to spur a faster economic recovery, but that does not mean policymakers will conclude the costs outweigh the benefits.
Indeed, the officials who have voiced the greatest angst over the central bank's course do not currently have a vote on the policy-setting panel and the Fed's two most influential officials — Chairman Ben Bernanke and Vice Chairman Janet Yellen — are seen as committed to the bond-buying plan.
"It is not an even discussion in the sense that these two sides on the committee do not have equal weight," said Dean Maki, chief economist at Barclay's Capital in New York. "Bernanke and Yellen are strong advocates of QE."
The Fed has more than tripled the size of its balance sheet since 2008 to around $3 trillion through a series of bond buying programs and it opted in January to keep purchasing assets at an $85 billion monthly pace until the labor market outlook improved substantially.
But the minutes highlighted deep divisions among the 19 policymakers at the central bank.
"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 labor market had occurred," the minutes said.
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