NEW YORK, Feb 20 (Reuters) - The U.S. Federal Reserve may have to slow or stop buying assets before seeing the pickup in hiring the bold program is designed to deliver, due to concern over its possible costs, minutes of the Fed's meeting last month showed on Wednesday.
'A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred,' the minutes said.
The Fed voted last month to maintain its third round of so-called quantitative easing, or QE3, at a $85 billion monthly pace, while committing to hold interest rates near zero until unemployment hits 6.5 percent, provided inflation does not risk rising above 2.5 percent.
JOSHUA SHAPIRO, CHIEF U.S. ECONOMIST, MFR, NEW YORK
'Given the market sensitivity of this topic - after all, the flood of liquidity unleashed by the Fed and other central banks has been the main prop to equity and bond markets for months - we would expect that any meaningful signal about the future path of this policy would come from either Fed Chairman Bernanke or one of his two top lieutenants, NY Fed President Dudley or Vice Chair Yellen....
'Our view remains that at this stage monetary policy moves are for the most part a political and market sideshow and will have little, if any, impact on economic activity.'
TOM DIGALOMA, MANAGING DIRECTOR, NAVIGATE ADVISORS LLC, STAMFORD CONNECTICUT:
'At first glance, the FOMC minutes look hawkish as concerns about quantitative easing are called into question again. There's support by members of the Federal Open Market Committee to end or reduce the level of QE.'
GENNADIY GOLDBERG, INTEREST RATE STRATEGIST, TD SECURITIES, NEW YORK:
'There is nothing too unexpected. The market seems to have reacted to the part about the Fed being prepared to vary the pace of QE, but that is nothing new. It seems that the headlines are a bit less dovish, they have upgraded the assessment on the economy a little bit, but that was to be expected.
'There remains a lively discussion about the costs/benefits of QE, with some wanting to end sooner and others, the core of the FOMC, wanting to keep QE going. There is no chance they are going to lift the foot and slam on the brakes immediately. If worse comes to worse we'll get a tapering, if things start to improve substantially, which we'll have to wait until later in the year to see.'
OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON D.C.:
'It looks like the minutes in some ways echoes those made a month earlier where policymakers were expressing concerns about quantitative easing and it impact on market operations.
'It is somewhat more hawkish than expected and so are seeing a similar reaction as we did last month. The Fed clarified to the market is not considering winding down QE anytime soon, but we are seeing in the minutes that policy makers are concerned the size of QE may be distorting markets. They are actively discussing an exit strategy, which is bullish for the dollar and is weighing on equities.'
TOM DI GALOMA, MANAGING DIRECTOR, NAVIGATE ADVISORS LLC, STAMFORD, CONNECTICUT:
'At first look, the FOMC minutes look hawkish as concerns about QE are called into question again. Overwhelming support by FOMC members to end or reduce the level of QE.'
AXEL MERK, PRESIDENT, MERK INVESTMENTS, PALO ALTO, CALIFORNIA
'The FOMC does seem increasingly concerned about the side effects of their policies. Of course, they probably should have thought about that a couple of trillion dollars earlier. But remember, the folks who are voting this year on the FOMC are very dovish. So even as hawkish voices come through in the minutes, the FOMC is likely to keep monetary policy steady. The dollar is rallying now but it had been down recently, so there was scope for it to rise.'
TODD SCHOENBERGER, MANAGING PARTNER AT LANDCOLT CAPITAL IN NEW YORK:
'What Wall Street wants to hear is an absolute sign that the Fed will continue with QE for the indefinite future. When it says we may end it faster, that just raises the uncertainty and the market hates that. But realistically, we have a QE program at least through 2013, but we may need to reevaluate after that.'
STOCKS: U.S. stocks extended losses The Dow Jones industrial average dropped 17.50 points, or 0.12 percent, to 14,018.17. The Standard & Poor's 500 Index dropped 7.12 points, or 0.47 percent, to 1,523.82. The Nasdaq Composite Index dropped 19.17 points, or 0.60 percent, to 3,194.43. BONDS: U.S. 30-year bond price turned positive after an initially drop
FOREX: The dollar rallied to session highs against the euro and yen
(Americas Economics and Markets Desk; +1-646 223-6300)
Keywords: USA ECONOMY/INSTANT
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