Fed officials split on stimulus exit

Federal Reserve officials are divided on when to wind down their unprecedented efforts to stimulate the economy, according to the minutes from a March policy-setting meeting.

The records indicate some members of the Fed are getting antsy about the bank's swelling balance sheet, which now tops $3 trillion. Some central bank officials see the costs as already outweighing the benefits and want to bring existing policy to a halt "relatively soon."

The minutes of the meeting were released early Wednesday after they were inadvertently sent Tuesday afternoon to an email distribution list populated mainly by congressional offices and trade groups.

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Members of the Federal Open Market Committee (FOMC), which sets Fed policy, generally agreed at the March session that the monthly purchases of $85 billion in bonds, combined with near-zero interest rates, are yielding benefits for the economy.  

But members were split on the scale of that impact. While most argued Fed policy has had a "meaningful effect," others said they saw little evidence that the stimulus has helped the economy. Some said the efforts are growing less effective over time.

Members also discussed the risks inherent in the bond purchases, including possible increases to financial market instability and a negative impact on the Fed's profit margin, and debated how the central bank could smoothly exit from the trillions of dollars in bond holdings.

"Reflecting the limited experience with large-scale asset purchases, participants recognized that estimates of the economic effects were necessarily imprecise and covered a wide range," the minutes stated.

Since the financial crisis, the Fed has embarked on an unprecedented push to bolster the economy. It has kept interest rates near zero since the end of 2008 and embarked on three separate rounds of bond purchases, known as "quantitative easing," to drive down borrowing costs.

The central bank is currently buying $85 billion of bonds a month, and has committed to doing so until the unemployment rate dips below 6.5 percent, assuming inflation stays under control.

The bank's moves have been heavily criticized by Republicans on Capitol Hill. They argue that the Fed's policies are doing little to help the economy while encouraging damaging inflation down the line.

Some Republican lawmakers are pushing legislation that would force the Fed to focus solely on controlling inflation, as opposed to its current dual mandate of price stability and maximum employment.

"We must take a very serious look at the current state of monetary policy," House Financial Services Committee Chairman Jeb Hensarling (R-Texas) told the U.S. Chamber of Commerce on Wednesday. “It is time for more rigorous oversight of America’s central bank."

Fed officials were also split on when would be the right time to ease away from the aggressive monetary policy. Some argued the condition of the economy warrants continuing the bond purchases until later this year. But others contended that the purchases might need to begin to slow sometime in the next several months as the labor market continues to improve.

The minutes provide an inside look at the Fed's March meeting, in which the central bank agreed to continue the existing policy of near-zero interest rates and $85 billion monthly purchases.

While Fed officials generally believed the bank's monetary policy has had positive impact on growth, they saw federal fiscal policy as "exerting significant near-term restraint on the economy."

Most participants believed the federal budget cuts from sequestration were depressing demand, or would do so in the future. Some, however, trimmed their estimates for the economic impact of the sequester cuts, or never believed them to be substantial in the first place.

— This story was updated at 1:18 p.m.