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Fed worried about sub-2% inflation 'for quite some time,' minutes show

Federal Reserve officials are worried that inflation may stay low "for quite some time" despite the central bank's multi-trillion dollar efforts to jump start the economy, according to minutes from the October meeting released Wednesday.

Open Market Committee members also discussed just how they should go about raising interest rates as monetary policy normalizes, and expressed some worry over market volatility during the process.

"Participants anticipated that inflation would be held down over the near term by the decline in energy prices and other factors, but would move toward the Committee's 2 percent goal in coming years, although a few expressed concern that inflation might persist below the Committee's objective for quite some time," the minutes said.

The Fed at its October meeting voted to end its monthly bond-buying program known as quantitative easing. The lone dissenter was Minneapolis Fed President Narayana Kocherlakota, a dovish member who wanted QE to continue until inflation is higher.

The Federal Reserve building
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The Federal Reserve building

Markets showed a mildly negative reaction to the minutes, with the S&P 500 stock index edging lower. That was a contrast to October, when the Fed released the September meetings and stocks rose 1.75 percent for the day. That was followed the day after by a 2.1 percent decline.

Kocherlakota spoke for nervous doves on the committee when he offered the lone dissent to the Fed statement. He was in favor of continuing QE even though the program has expanded the central bank balance sheet past the $4.5 trillion mark and has sparked concern over market bubbles and potential inflation ahead.

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"Mr. Kocherlakota dissented because he believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to maintaining the current target range for the federal funds rate at least until projected inflation one to two years ahead has returned to 2 percent," the minutes said.

Members debated adding language to the final statement noting recent developments in the financial markets. October was a highly volatile month, with stocks and bond yields tanking Oct. 15 before battling back. The FOMC ultimately decided against including specific language, though it appears there was considerable discussion.

"Many participants commented on the turbulence in financial markets that occurred in mid-October," the minutes said. "Some participants pointed out that, despite the market volatility, financial conditions remained highly accommodative and that further pockets of turbulence were likely to arise as the start of policy normalization approached."

The Fed had been buying just $15 billion of bonds a month when it decided to pull the plug on the money-printing program. QE was in its third phase, which featured as much as $85 billion in purchases each month before the FOMC voted to begin tapering the program in December 2013.

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"We would have liked to have seen more specifics in terms of a timeline for the first Fed rate increase. But instead we saw, as expected, a more aggressive conversation regarding new and lingering headwinds to that first rate increase," Lindsey Piegza, chief economist at Sterne Agee, told CNBC.

In other discussions, most members indicated they saw the economy growing at a "moderate" pace, while the jobs market had "somewhat" improved. They considered the pace of housing gains to be "slow," however.