Looking at the Fed and jobs

Minutes from the Federal Open Markets Committee meeting Jan 29-30, released Wednesday, show that members of the committee are beginning to differ on policy to reduce the nation’s jobless rate.

Here’s the top of the New York Times story, which focuses on the debate.

There are widening divisions among Federal Reserve officials about the value of its efforts to reduce unemployment, but supporters of those efforts remain firmly in control, according to an official account of the Fed’s most recent meeting in January.

An increasingly vocal minority of Fed officials are concerned that buying about $85 billion of Treasury securities and mortgage-backed securities each month is doing more harm than good. They argue the purchases may need to end even before unemployment drops, because the Fed’s efforts are encouraging excessive risk-taking and may be difficult to reverse.

But the Fed’s policy-making committee reiterated its determination in January to hold course until there is “substantial improvement” in the outlook for job growth, and several officials cautioned at the January meeting that the greater risk to the economy was in stopping too soon, according to the account, which was published after a standard three-week delay.

“A few participants noted examples of past instances in which policymakers had prematurely removed accommodation, with adverse effects on economic growth, employment, and price stability,” it said. “They also stressed the importance of communicating the Committee’s commitment to maintaining a highly accommodative stance of policy as long as warranted by economic conditions.”

Proponents of strong action to reduce unemployment raised for the first time the possibility that the Fed should maintain a portion of its asset holdings even as the economy recovers because doing so could magnify the benefits. Its holdings now total almost $3 trillion.

The Wall Street Journal chose to focus on what a quick pull-back in the Fed’s policy would do to markets.

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.

The Bloomberg story focused on the quantitative easing aspect of the Fed’s recent policy:

Several Federal Reserve policy makers said the central bank should be ready to vary the pace of their $85 billion in monthly bond purchases amid a debate over the risks and benefits of further quantitative easing.

The officials “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved,” according to the minutes of the Federal Open Market Committee’s Jan. 29-30 meeting released today in Washington.

The minutes showed policy makers were divided about the strategy behind Chairman Ben S. Bernanke’s program of buying bonds until there is “substantial” improvement in a U.S. labor market burdened with 7.9 percent unemployment, with some saying an earlier end to purchases might be needed, and others warning against a premature withdrawal of stimulus.

No matter which story you read first, it is obvious that the members of the Federal Reserve are getting nervous about the length of their stimulus programs. It’s a quick turn from vowing in August that the Fed would take action to help create jobs.

The market didn’t like the news, dropping slightly after the minutes were released.