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Why the Fed backed away from tapering: Jon Hilsenrath

Federal Reserve Chairman Ben Bernanke
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Federal Reserve Chairman Ben Bernanke

A surprise decision by the Federal Reserve last month to keep its monetary stimulus program followed six months of tense debate and helps explain why the U.S. central bank muddled its message to markets, according to a new article by the Wall Street Journal's noted Fed watcher Jon Hilsenrath.

Hilsenrath, citing several people close to the Fed's deliberations, wrote that a small group of Fed officials has privately been pushing Fed chief Ben Bernanke to plan an exit from the $85 billion-a-month asset-purchase program.

(Read more: The Fed's 'hidden agenda' behind money-printing)

And markets, which had been anticipating a scaling back of the monetary stimulus in September, were taken aback when signs of a weakness in the economy prompted the Fed to stay its hand.

The minutes of the Fed's September 17-18 meeting will be released this Wednesday and are likely to be watched closely for further insight into what prompted the Fed to delay a widely-anticipated tapering.

"The internal Fed debate over the program shows how challenging it can be to forge consensus among the 19 individuals who take part in interest-rate and bond-buying decisions," Hilsenrath wrote.

(Read more: Bill Gross: Fed will have to taper at some point)

He added that ahead of the Fed's meeting in June, discussions between Bernanke and other Fed officials about clarifying the exit strategy also intensified, according to several people familiar with the deliberations.

Almost half of Fed officials wanted to end the program before year-end, the minutes from that meeting later showed.

Meanwhile, analysts have started to push back expectations for when the Fed is likely to start unwinding its monetary stimulus as worries grow about the impact a U.S. government shutdown will have on the economy.

(Read more: The government shutdown probably kills the 'Octaper')

A budget impasse has meant the U.S. government has been shut down for the past week, undermining a recovery.

"We don't see the Fed tapering in October; our view is that the taper will probably occur in December," Vasu Menon, vice president, wealth management Singapore at OCBC Bank, told CNBC Asia's "Squawk Box" on Tuesday. "The longer the shutdown drags on, the bigger the impact on the economy, giving less room for the Fed to taper."

—By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter

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