Some Federal Reserve officials were concerned that a decision to keep securities holdings unchanged would inadvertently signal an intention to resume large-scale asset purchases, minutes of the Aug. 10 meeting showed.
Also, a few policy makers said the economic effects of the decision “likely would be quite small,” the Fed’s Open Market Committee said in a report today in Washington. At the same time, some officials saw “increased downside risks to the outlook for both growth and inflation” and voiced concern that further shocks would cause “significant slowing in growth.”
The debate shows the challenge Fed Chairman Ben S. Bernanke may face in achieving consensus for any additional monetary stimulus to reverse a slowdown in growth and reduce joblessness more quickly. Policy makers haven’t agreed on “specific criteria or triggers for further action,” Bernanke said in a speech last week.
“A few members worried that reinvesting principal from agency debt and MBS in Treasury securities could send an inappropriate signal to investors about the Committee’s readiness to resume large-scale asset purchases,” the Fed said in the report, referring to mortgage-backed securities.
Fed officials agreed at the meeting to put a $2.05 trillion floor on securities holdings and buy Treasuries to replace an estimated $395 billion of mortgage assets that would be repaid from August 2010 through the end of 2011. LINK
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