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Fed Members Still Divided On Need for More Easing: Minutes

The Federal Reserve appears open to the idea of a third round of bond purchases to boost a still-modest recovery. But members remain divided over when or whether to take that step.

The Federal Reserve headquarters in Washington, DC.
The Federal Reserve headquarters in Washington, DC.

Minutes of the Fed's Jan. 24-25 meeting show that some Fed officials thought such bond purchases should begin soon because unemployment remains high and inflation low.

U.S. stock marketsheld their sharp losses on Wednesday following the minutes release.

Others said such a step should be taken only if the economy weakened further or if inflation stayed below the Fed's target rate of 2 percent.

The debate took place at a meeting in which the Fed decided to hold its benchmark interest rate at record lows until at least late 2014. One Fed official argued that the central bank might need to consider abandoning that plan to keep inflation low.

Fed Chairman Ben Bernanke said at a news conference after the January meeting that the Fed hadn't ruled out a third round of bond buying to help boost the economy.

Bernanke also said the Fed would provide more information on the central bank's balance sheet of bond holdings in the future.

Few economists expect the Fed will announce a bond buying program after its next meeting on March 13. That's because the outlook for hiring — and the broader economy — is looking better since the Fed's meeting.

The economy added 243,000 net jobs in January, the most in nine months. And the unemployment rate fell for the fifth straight month, to 8.3 percent. The government reported the figures one week after the Fed met.

Many analysts believe those reports have pushed a possible round of bond buying further into the future. And some believe that unless there is a shock to the U.S. economy, such as a deeper crisis in Europe, the Fed will not go forward with more bond purchases.

Still, Bernanke told a Senate panel last week that the declining unemployment rate doesn't capture the plight of millions who have stopped looking for work.

His cautious view suggests the Federal Reserve plans to stick with the three-year time line, even if the unemployment rate continues to gradually decline.

At the January meeting, the central bank for the first time released forecasts for where individual Fed officials expected the key interest rate to be in the future. Those forecasts showed that some members foresee super low rates beyond 2014, while six members saw the increases starting in either 2013 or 2014.

The rate forecasts were an effort to provide more explicit clues about the Fed's plans to give financial markets greater assurances that rates will stay low for some time to come.

The forecasts support a broader Fed effort to make its communications with the public more open.

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