Leaked Fed Minutes Reveal Split Over Stimulus Spending

Federal Reserve Chairman Ben Bernanke. (AP)

Minutes from the Federal Reserve’s March policy meeting, accidentally leaked to congressional staffers and trade lobbyists one day ahead of the usual release date, show that policymakers are in disagreement over whether the Fed should start winding down its $85 billion monthly bond purchasing policy.

The following notes from the Washington Post’s Neil Irwin illustrate the confusion:

• “A few others saw the risks increasing fairly quickly . . . and judged that the pace of purchases would likely need to be reduced before long.” (This could include some of those who have raised alarm bells about financial bubbles but still voted for the easing programs, such as governor Jeremy Stein.)
• The next group appears to include the most members: “Many participants” argued that the improved outlook for the job market could justify slowing the pace of bond purchases “at some point over the next several meetings.” (This seems, from recent speeches, to be a relatively broad group of the committee, including centrists such as Atlanta Fed president Dennis Lockhart and doves such as John Williams of the San Francisco Fed and Fed vice chairman Janet Yellen.)
• “A few” argued that economic conditions would justify maintaining the $85 billion a month in purchases “at least until late in the year.” (This group likely includes the most dovish voices, such as Chicago Fed president Charles Evans and Eric Rosengren of the Boston Fed.)
• “A couple” of those participants noted that if economic progress were not maintained, the pace of purchases might need to be increased. (Again, we’re looking at you, Evans and Rosengren.)

The minutes indicated that many of the Fed's members want to see sustained improvement in the job market -- from a wide range of economic indicators -- before making any decision to reduce the pace of purchases.

The Fed’s stated goal over the past couple of years has been to bring unemployment under control via Treasury and mortgage bond purchases and keeping interest rates at record lows.

A few members want to end "relatively soon" the bond-purchase program. Those members say the costs likely outweigh the benefits. A few others saw the risks as increasing quickly and said the purchases would likely need to be reduced "before long."

"One gets the sense that many Fed policymakers are anxious to start paring back the size of the ... purchases as soon as the data allow," Dana Saporta, an economist at Credit Suisse, said in a note to clients.

Many members said an improved job market could lead them to slow purchases within a few months, and a few said economic conditions would likely justify continuing the program until late this year.

However, considering the fact that last week’s jobs report was pretty terrible (only 88,000 jobs were added to the economy) and the fact that it has become almost solely dedicated to the goal of bringing unemployment down, it seems unlikely that the Fed will wind down its multibillion-dollar program any time soon.

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The Associated Press contributed to this story.