The Federal Open Market Committee (FOMC) meeting minutes revealed the Fed discussed the benefits of buying "substantial" amounts of U.S. Treasuries at its Jan. 28 meeting.
The minutes also confirmed that Federal Reserve Bank of Richmond President Jeffrey Lacker dissented, "because he preferred to expand the monetary base by purchasing U.S. Treasury securities rather than through targeted credit programs."
However, the FOMC said its would embark on the Treasury purchase plan only if circumstances show buying up bonds would improve private credit markets. For now, buying agency debt and mortgage-backed securities would be more effective, the minutes read.
"The prospects for the Fed to purchase longer-term Treasuries have been pushed off to a later-date," said Ian Lyngen, strategist with RBS Greenwich Capital. Lyngen said with only Lacker on board, it looks as though the Treasury-purchase debate will continue.
Market reaction was muted following the minutes, but then U.S. Treasuries rallied following recognition of the potential for Treasury purchases.
The other significant news from the minutes was the Fed's introduction of long-term forecasts over a five- to six-year period, starting with the release of the January minutes.
The Fed forecasts GDP to range between a 2.5% to 2.7% growth rate over the long term. Unemployment should range from 4.8% to 5% in the long term after reaching 8.5% to 8.8% in the fourth quarter of 2008, the minutes revealed.
The minutes also said some members saw a risk of deflation, as well as a risk that a recovery in economic growth could be prolonged.
The minutes said FOMC members saw "no indication" of a stabilization in the housing market.
By Megan Ainscow and edited by Stephen Huebl
©CEP News Ltd. 2009