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Some Members See QE End Before End of 2013: Fed

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Federal Reserve officials are increasingly concerned about the potential risks of its asset purchases on financial markets, but look set to continue its open-ended stimulus program for now.

Minutes from the Fed's December policy meeting showed a growing reticence about further increases in the central bank's $2.9 trillion balance sheet, which it expanded sharply in response to the financial crisis and recession of 2007-2009.

"Several (officials) thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet," the minutes said.

Following the release, the dollar rose further against the euro, the U.S. 10-year Treasury note yield jumped to an eight-month high and gold dropped. U.S. stocks drifted lower.

Still, the Fed appeared likely to continue buying assets for the foreseeable future, having announced in December it was extending monthly purchases of $40 billion in mortgage securities and also buying $45 billion in Treasuries each month.

A few of the voting members on the central bank's policy-setting Federal Open Market Committee thought asset buying would be warranted until about the end of 2013. A few others highlighted the need for further large-scale stimulus but did not specify an amount or time frame.

Pimco's Bill Gross told CNBC it was "a little bit of a surprise" that there was some dissension but that he expected the three Fed members that drive policy — Bernanke, Yellen and Dudley — would continue maintain control.

After announcing new targets that centered around 6.5 percent unemployment and 2.5 percent inflation for one to two years, Gross said, "Unless we broached 6.5 percent unemployment on the downside and unless inflation was accelerating beyond 2.5 percent that quantitative easing would continue. We simply think they have very little choice absent those two conditions."

In a note, Pierpoint Securities' Stephen Stanley said that the market reaction was probably overdone. "If the Bernanke/Yellen/Dudley/Williams/Evans/Rosengren group wants open-ended QE, then open-ended QE it will be," he wrote "The Pianaltos and Lockharts of the Committee no doubt had their concerns, but, in the end, they always fall into line."

Fed officials generally agreed that the labor market outlook was not likely to improve without further nudging from the monetary authorities.

The U.S. economy expanded a respectable 3.1 percent in the third quarter on an annualized basis, but growth is believed to have slowed sharply to barely above 1 percent in the last three months of the year.

Data on Thursday showed a solid gain of 215,000 new private sector jobs for December, while analysts polled by Reuters last week were looking for a rise of 150,000 new jobs in the Labor Department's official survey, due out on Friday.

In the December meeting, the Fed also launched a new framework of policy thresholds, numerical guideposts that are supposed to give markets and the public a clearer idea of how policymakers will react to incoming economic data.

Officials say they will keep interest rates near zero until the unemployment rate falls to 6.5 percent for as long as estimates of medium-run inflation do not exceed 2.5 percent.

The minutes suggested it took officials some time to build a consensus around the idea.

"A few participants expressed a preference for using a qualitative description of the economic indicators influencing the Committee's thinking," the minutes said.

U.S. unemployment has come down steadily after hitting a peak of 10 percent in late 2009, but remains elevated at 7.7 percent.

Still, the Fed appeared likely to continue buying assets for the foreseeable future, having announced in December it was extending monthly purchases of $40 billion in mortgage securities and also buying $45 billion in Treasuries each month.

A few of the voting members on the central bank's policy-setting Federal Open Market Committee thought asset buying would be warranted until about the end of 2013. A few others highlighted the need for further large-scale stimulus but did not specify an amount or time frame.

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