The minutes from a mid-December joint meeting between the Federal Reserve's Board of Governors and the Federal Open Market Committee, published Wednesday, reveal possible disunity regarding the central bank's winding down of its support programs.
Meeting participants struggled to agree on how to interpret the mixed economic picture, which included contracted bank lending, slowing unemployment, a slightly stabilized housing market and continuing deterioration of commercial real estate fundamentals.
‘Some participants remained concerned about the economy's ability to generate a self-sustaining recovery without government support,’ the minutes read, specifying the risk that housing-sector improvements "might be undercut" this year as the Fed winds down its mortgage-backed securities purchases, the home-buyer tax credit expires and foreclosures continue to bog down a weak market.
The minutes also indicate participants' concern over commercial real estate loans, whose worsening performance is predicted to have a staggering effect on regional banks.
"CRE activity continued to fall markedly in most parts of the country as a result of deteriorating fundamentals, including declining occupancy and rental rates, and very tight credit conditions," Secretary Brian Madigan wrote. "Prospects for nonresidential construction remained weak."
A "few membersâ�¦observed that it might be desirable" for the Fed to continue its mortgage-backed asset purchases beyond the first quarter, while one member believed market condition improvements "suggested that the quantity of planned asset purchases could be scaled back."
The minutes also point out that members did not generally believe that keeping short-term interest rates very low would raise inflation expectations or create asset-market instability. Nonetheless, they noted that it was "important to remain alert to these risks."
SOURCE: Federal Reserve