Some members of the Federal Reserve's policymaking committee said last month they favored ending the Fed's program of buying bonds to push down interest rates by the end of this year or sooner, according to the minutes of the Fed's December meeting.
The minutes, released Thursday, indicated divisions among policymakers about when their $85 billion a month in bond purchases should stop. The Fed has not announced an end date, saying purchases will continue "if the outlook for the labor market does not improve substantially."
The minutes show "a few" members of the committee favored ending purchases around the end of 2013 and "several" thought the Fed should slow or stop its purchases "well before" this year ends. Members who provided estimates on when the purchases should end were "approximately evenly divided" between those who favored stopping around midyear and those who thought they should run longer, the minutes said.
The stock market fell after the Fed's disclosure. The Fed's bond-buying program has been a major boost to stocks and an insurance policy for stock investors, said Anthony Chan, chief economist at Chase Private Markets, a wealth-management unit of JPMorgan Chase. But the purchases will likely continue into 2014, and the low consumer interest rates the Fed's policy has produced will last longer, several economists said.
"The very low mortgage rates will stick around for a while," said Stuart Hoffman, chief economist at PNC Financial in Pittsburgh. "But certificate of deposit rates will also stay very low, for this year and probably for several more."
The market was disappointed by the Fed's disclosure, and the prospect that bond purchases may wane, Chan said. But if the Fed does back off, that would be a sign that the economy has improved enough that even Fed members who favor aggressive measures to promote the recovery, such as Chairman Ben Bernanke and Vice Chair Janet Yellen, have been persuaded by better data to slow the purchases, he said.
"It's sort of like a fire truck," Chan said. "When they turn the water off, it's because the fire is down."
In addition to announcing a new bond-buying program, the Fed said last month that it would keep a key interest rate at nearly zero at least as long as the unemployment rate was above 6.5% and inflation expectations stayed below 2.5% a year.
The Fed left itself room to change plans if unemployment dips but other signs, such as more workers dropping out of the workforce, suggest the job market is still weak.
The Fed is likely to keep buying bonds until 2014 because unemployment won't fall fast enough this year to make it change direction, said Paul Edelstein, director of financial economics at consulting firm IHS Global Insight.
"We expect the unemployment rate to be 7.6% in the fourth quarter (of 2013), little changed from today's 7.7%," Edelstein said.
The government reports the unemployment rate for December on Friday. Earlier on Thursday, payroll processing company ADP reported that private-sector employers added 215,000 new jobs during December, much more than the 140,000 economists had forecast.
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