The US Federal Reserve agreed last month to modestly reduce its bond purchases because of improvements in the job market that many members felt would be sustained.
Many participants called the job gains “meaningful,” according to the minutes.
Still, minutes of the December 18-19 meeting showed that some participants worried that investors might misread the move as a step toward raising the Fed’s key short-term interest rate.
In response, the Fed said it plans to keep its short-term rate low “well past” the time the unemployment rate dropped below 6.5 per cent, as long as inflation stayed low.
Some members wanted to lower that unemployment threshold to six per cent. But the majority opposed doing so. They favoured assessing a range of measures of the job market – not just the unemployment rate – in making any policy changes.
The economy has added an average of 200,000 jobs a month from August through November. And the unemployment rate has reached a five-year low of seven per cent.
On Friday, the government will release its employment report for December. A private report Wednesday raised expectations for Friday’s government report.
Payroll provider ADP said businesses added 238,000 jobs in December, up slightly from 229,000 in the previous month.
Last month the Fed announced that it would reduce its monthly bond purchases from $US85 billion to $US75 billion starting this month. And it said it expected to further reduce the bond purchases in “measured steps” at upcoming meetings, if the economy and the job market continue improving.
The bond purchases are intended to keep long-term rates low, and encourage more borrowing and spending.
Many economists believe the Fed could reduce the bond purchases by an additional $US10 billion at each of the Fed’s upcoming meetings, if the economy continues to add a healthy number of jobs. At that pace, the Fed would end its program of new purchases by the end of the year.
The minutes showed Fed officials were split on the issue of trimming bond purchases. Some favoured a larger initial cut and future reductions that would “bring the program to a close relatively quickly.”
Other officials disagreed. The minutes said that some questioned whether an initial move to slow the bond buys was warranted in December, given that unemployment remained elevated and inflation was running well below the Fed’s two per cent target.
Some analysts believe the Fed could go further at upcoming meetings to strengthen its forward guidance about short-term rates now that Janet Yellen has been confirmed as the incoming chairman to succeed Ben Bernanke.