At the close of that meeting, the Fed announced it had agreed to purchase $40 billion of mortgage bonds each month, and would continue to do so until it sees substantial gains in the labor market that it still sees as "disappointing."
The decision to embark on QE3 subjected the Fed to fierce criticism from Republicans, who have long warned that such efforts at stimulus are ineffective and expose the economy to damaging inflation down the line.
Although the Fed ultimately approved the new strategy with just one dissenting vote, the minutes show that several officials had their reservations. "A few" were skeptical the added step could actually do much to address the economy's ills, and "several" pointed out that more purchases to the Fed's already bloated balance sheet could make it more difficult for the Fed to unwind its position when the time comes, "raising the risk of undesirably high inflation." One Fed official argued that more monetary policy accommodation could encourage dangerous risk-taking in financial markets.
But by the end of the meeting, most participants agreed those risks could be managed and the Fed could adjust its purchases if necessary.
Concerns about the "fiscal cliff" of automatic spending cuts and expiring tax cuts set to take effect at the beginning of 2013 were common at the meeting. That and continued questions about the European debt crisis were identified as major risks to the U.S. recovery. Fed officials agreed that fiscal policy would continue to drag on the economy, adding they were hearing businesses were avoiding decisions because of that uncertainty.
The Fed also used its latest meeting to extend the timeline it now expects to keep interest rates near zero, from mid-2014 to the end of 2015.
However, the minutes also indicate that the Fed may be warming to the idea of adjusting how it informs the market when it expects to adjust its policy. Instead of announcing how long it expects to keep interest rates near zero, Fed officials debated tying future interest rate moves to future economic conditions. Some Fed officials even suggested the central bank should offer specific numerical targets for the labor market and inflation that would serve as a threshold for interest rate moves.
From the perspective of some officials, a shift to an trigger based on economic conditions carried several positives. For one, some were concerned that under the current arrangement, each time the Fed decided to move out its timeline, it could be interpreted as growing economic pessimism from the central bank as opposed to an increased determination to support the economic recovery, which could undercut the entire effort.
"If the public interpreted the statement pessimistically, consumer and business confidence could fall rather than rise," the minutes state.
Furthermore, connecting Fed moves with economic conditions could allow the marketplace to automatically adjust when it expects the central bank to act based on new economic data.
However, such a change did come with some challenges as well. For one, setting a specific threshold would be difficult, given the broad range of perspectives from voting Fed members — some Fed officials did not want numerical targets as all, arguing they were "too simple to fully capture the complexities of the economy" and could be misinterpreted.
The Fed ultimately tabled the idea, saying it could be useful but needed more work.