WASHINGTON – The Federal Reserve is planning how to end years of ultra-loose monetary policy in the face of a building US recovery and looming inflation fears, minutes from the latest policy meeting show.
Amid concern that sustained unrest in oil producing nations might spark entrenched inflation, minutes from the Fed's March meeting show members discussed ending long-standing policies, including ultra-low interest rates.
The Fed has kept interest rates near zero since December 2008 and bought up more than a trillion dollars in assets to help stimulate the economy.
Critics argue the bank may not be able to unravel low rates and massive stimulus spending quickly enough if inflation picks up too rapidly.
"To mitigate such risks, participants agreed that the committee would continue its planning for the eventual exit from the current, exceptionally accommodative stance of monetary policy," the minutes showed.
But the panel stopped short of agreeing a time frame for the move, amid an unclear picture of the economy's future.
"In light of uncertainty about the economic outlook, it was seen as prudent to consider possible exit strategies for a range of potential economic outcomes," the minutes read.
However there were also signs of a growing policy divergence on the Fed's top policy panel.
While some members "indicated that economic conditions might warrant a move toward less-accommodative monetary policy this year," a few others "noted that exceptional policy accommodation could be appropriate beyond 2011," the minutes showed.
Michael Gapen of Barclays Capital noted that the minutes "were fairly light on the timing and sequencing of the eventual exit strategy."
"One group continues to take a cautious stance on the recovery," he said, with the group stressing that high levels of unemployment will restrain inflation.
"The other group sees the size of the Fed's balance sheet as generating excessive upside risk to the inflation outlook."
But the minutes did appear to show the pendulum swinging slightly toward inflation hawks.
"Unless the data strengthens or commodity based inflation rises further, we think these minutes highlight that this is probably as hawkish as the core doves will get, for now," said George Goncalves of Nomura.