WASHINGTON — Though the U.S. fiscal position was looking up a bit since the December meeting, the Federal Open Market Committee became increasingly wary about the effects of new asset purchases, according to the minutes of the committee's Jan. 29-30 meeting, released Wednesday.
The partial resolution of the so-called "fiscal cliff" buoyed the U.S. economy somewhat, still the economy continued to expand at only a moderate pace, according to the minutes. Most members noted that "the Committee's asset purchases had been effective in easing financial conditions and helping stimulate economic activity," as well as keeping inflation near its long-run goal of 2% and helping to prevent unemployment from growing.
But members increasingly began to voice concern about possible risks associated with continued accommodation.
"Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability," the minutes state. "Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy."
Some Committee members discussed the possibility of holding on to securities "for a longer period than envisioned in the Committee's exit principles, either as a supplement to, or a replacement for, asset purchases." The group ultimately decided to continue its previously announced purchase program of mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.
Kansas City Fed Bank President Esther L. George dissented from the decision, citing the long-term risks.