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Fed members wary of continued monetary easing

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Betsi Fores The Daily Caller News Foundation

A record of the latest Federal Open Market Committee meeting reveals that some Federal Reserve Board officials have grown more wary of the continued asset buyback program known as quantitative easing.

The FOMC, which oversees the Federal Reserve Board’s buying and selling operations, meets regularly throughout the year. In minutes from the committee’s most recent meeting in March, several members indicate concern over the current state and stability of the financial system.

“In particular, participants pointed to possible risks to the stability of the financial system, the functioning of particular financial markets, the smooth withdrawal of monetary accommodation when it eventually becomes appropriate, and the Federal Reserve’s net income,” March’s FOMC meeting minutes said. “Their views on the practical importance of these risks varied, as did their prescriptions for mitigating them.”

The quantitative easing program began in 2008 as a way to expand the money supply and allow large financial firms to become larger. What started as individual rounds of asset buying by the Federal Reserve Bank has turned into what critics dubbed “QE-finity” where the central bank has given no direct time line on when it intends to phase out the program.

Although the five years since have yielded no evidence that the program is boosting economic growth, job creation or fiscal health, Fed Chairman Ben Bernanke has repeated his intention to continue QE until the economy — measured by employment numbers — improves.

The Fed is currently purchasing Treasury and mortgage-backed securities at a rate of $85 billion a month. There is talk that the agency may decrease its investment later this year, should the economy pick up as some forecasts expect it too.

Currently, the Federal Reserve has a balance sheet of $3.2 trillion.

Some officials are concerned about possible side effects, such as large-scale inflation, or continuing near-zero level interest rates too far into the future.

There is also concern that the overwhelming amount of money pumped into the economy each month could be creating unnatural bubbles in the economy, setting it up for a collapse sometime in the future.

The meeting was held March 19-20, prior to the release of the March unemployment figures and other economic new releases.

“There’s been so much water under the bridge since then,” John Canally, an investment strategist and economist at LPL Financial, told CNBC. “If the FOMC (met) today, you might see a shift toward the more dovish side. We haven’t changed our view that you’ll continue to see these purchases.”

“The Fed has tied its rate policy to a 6.5 percent unemployment rate and 2.5 percent inflation level, neither of which appears attainable anytime soon, particularly considering the anemic 88,000 job gain in March,” CNBC reported.

Still, the markets seemed to have little reaction to the Open Market Committee meeting, despite the discontent among the members. “[T]he stock market continuing its dizzying 2013 rally,” CNBC notes.

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