Unease grows among US policymakers over bonds strategy

America's central bankers remained divided last month over how long they should continue with their policy of supporting the economy with billions of dollars in monthly bond purchases, with "many officials" growing nervous about the dangers of further expanding the Federal Reserve's balance sheet.

Although most members of the policy-setting Open Market Committee of the Fed, chaired by Ben Bernanke, thought the policy of buying up $85bn (£55bn) in government and mortgage bonds had been effective in "easing financial conditions and helping stimulate economic activity", the minutes of their January meeting showed that many were concerned about the "potential costs and risks arising" from an open-ended continuation of the policy.

"Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behaviour that could undermine financial stability," the minutes, published today, said.

The apparent unease among officials is likely to cause nervousness on the markets. Indications in the minutes of the December meeting of committee that it might move to tighten policy by the end of this year or sooner than many had expected led to worries among investors. Details of the January meeting are likely to revive those concerns.

The minutes also showed some members had suggested varying the purchases. "Several participants emphasized that the committee should be prepared to vary the pace of asset purchases," they said.

Others, however, were mindful of the risks of tightening policy too soon, before the economy is able to stand on its own feet.

"Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in the labour market outlook had occurred," the minutes said.