Fed officials eye easing exit in 2013

By Peter Schroeder - 01/03/13 03:40 PM ET

Federal Reserve officials are divided on when they should wrap up the agency's latest round of bond purchases, with "several" believing the effort should end this year, according to the latest minutes released by the central bank.

The minutes of the Dec. 11-12 meeting reveal that a contingent of Fed officials believe it should end its new policy of monthly purchases of billions of dollars of bonds "well before" the end of 2013, suggesting the central bank could halt the stimulus earlier than many expected.

The Fed announced in September it was embarking in a third round of "quantitative easing," buying $40 billion in mortgage debt each month. The program was expanded in December to include $45 billion of Treasury bonds.

During its first two rounds of easing, the Fed set an explicit timeline for the purchases. But for the third round, the Fed took a more open-ended approach, saying it would simply continue the purchases until it saw substantial improvement in the labor market.

The minutes show that "a few" members of the Federal Open Market Committee (FOMC) believed it appropriate to continue the purchases until the end of 2013, while "a few" others said "considerable" purchases would be needed and did not identify a timeline.

The language in the minutes suggests that a sizable chunk of the FOMC would favor ending the purchases before the end of 2013, as members cited "concerns about financial stability or the size of the balance sheet."

The minutes also detail the meeting in which the Fed decided, for the first time, to provide explicit economic targets for its policy moves. Following the meeting, the Fed announced that it would keep interest rates near zero until unemployment fell below 6.5 percent or inflation grew above 2.5 percent. Fed Chairman Ben Bernanke said after the meeting that the goal of the change is to provide more clarity about the Fed's policy.

“What it’s basically doing is saying how our policy would evolve over time as the economy evolves,” he said at a press conference. “We think it’s a better form of communication.”

The minutes show that all but one FOMC member favored the shift. Previously, the Fed had set rough target dates for policy changes.