Fed Officials Feared Easy Money Could Rattle Markets -WSJ

Fed Officials Feared Easy Money Could Rattle Markets -WSJ

By VICTORIA MCGRANE

Federal Reserve officials expressed growing unease with the central
bank's easy-money policies at its latest policy meeting and some
suggested the Fed might need to pull them back before the job market
is fully back to normal.

Minutes released Wednesday of the Fed's Jan. 29-30 policy meeting
showed that officials worried the central bank's easy-money policies
could lead to instability in financial markets and might be hard to
pull back in the future. The Fed plans to evaluate how the programs
are doing at its next meeting March 19 and 20.

Several officials said that the Fed should be prepared to vary the
pace of its asset purchases, depending on how the economy performs and
its analysis of the costs and benefits of the program, according to
the minutes.

Some Fed officials suggested the Fed may need to alter its stated
course to continue the bond-buying programs until the job market
improves "substantially," a threshold it hasn't defined.

"A number of participants stated that an ongoing evaluation of the
efficacy, costs and risks of asset purchases might well lead the
Committee to taper or end its purchases before it judged that a
substantial improvement in the outlook for the labor market had
occurred," the minutes stated.

The minutes don't identify participants by name, or specify how many
officials expressed a particular view beyond terms such as "a few" or
"several."

Despite some encouraging signs in sectors such as housing and autos,
Fed officials at the January meeting deemed the larger economic
picture still troubling and decided to keep purchasing $85 billion a
month of mortgage-backed and Treasury securities. The programs aim to
spur investment and hiring, thus boosting economic growth, by lowering
long-term interest rates.

Two Fed officials-Cleveland Fed President Sandra
Pianalto<http://topics.wsj.com/person/P/Sandra-Pianalto/5954> and St.
Louis Fed President James
Bullard<http://topics.wsj.com/person/B/James-Bullard/5955>-have said
in recent speeches that the Fed may want to scale back its bond buying
based on changing conditions, though they gave different reasons.
Optimistic about the economic outlook for this year and next, Mr.
Bullard said the Fed may want to slow its bond-buying pace if those
forecasts prove right.

Ms. Pianalto, on the other hand, expressed concern that some
financial firms may be taking on too much risk.

The minutes showed that some other Fed officials are concerned that
the Fed's easy-money policies may be encouraging excessive risk-taking
in certain corners of the credit markets. While most officials said
the Fed's bond-buying programs had successfully helped stimulate
economic activity, several "expressed concern about the potential for
excessive risk-taking and adverse consequences for financial
stability," the minutes stated.
Kansas City Fed President Esther George dissented at the January
meeting, citing concerns about financial stability.

The minutes also suggest that Fed officials may be rethinking their
exit strategy. "[A] number of participants discussed the possibility
of providing monetary accommodation by holding 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 minutes
stated.