Despite the recent slowdown in the housing recovery, Federal Reserve policymakers last month said they still expected to dial down their easy-money policy within a few months, according to meeting minutes released Wednesday.
Fed officials also debated whether to pull back the bond-buying program even before the job market shows clear improvement if concerns about its costs and risks increase.
Policymakers said they could “slow the pace of purchases at one of its next few meetings,” depending on the economy, according to minutes of the Oct. 29-30 meeting.
The Fed is buying $85 billion a month in Treasury bonds and mortgage-backed securities in an effort to hold down long-term interest rates and stimulate economic and job growth. Financial markets had expected the Fed to begin to taper the purchases in September, but the Fed put off the move amid weaker economic reports and the looming budget showdown in Congress.
The Fed’s decision to maintain the level of bond purchases in October was widely expected, in part because the government shutdown delayed the release of economic reports. Fed policymakers also said “the housing sector slowed somewhat in recent months, and (budget cuts and tax increases were) restraining economic growth,” according to the minutes.
Still, Fed officials “considered scenarios” under which they might taper the purchases “before an unambiguous further improvement” in the job outlook “was apparent.”
For example, the Fed has discussed the risks of eventual high inflation and of bubbles forming in markets, such as junk bonds, as low rates drive investments to riskier assets.
If the Fed’s policymaking committee trimmed the purchases before the outlook substantially improved because of rising costs, it “would need to communicate (that) effectively” the minutes say.
Even more critically, the Fed said “it might well be appropriate to offset the effects of reduced purchases by” taking other steps that could boost growth.
The Fed, for instance, has discussed lowering the threshold unemployment rate for when it would consider raising a key short-term interest rate, changing it from a 6 percent unemployment rate goal to 6.5 percent. That interest rate has been near zero.
Last month, the minutes show, “a couple” of policymakers favored reducing the threshold, but others noted that might raise concerns about the Fed’s “commitment to the thresholds.”
In a research note, Barclays Capital economist Peter Newland said the minutes “added to the sense that Fed policymakers are laying the groundwork.