Fed officials pondering debt sales, minutes show

Minutes to the Fed's January meeting suggested officials still have a relatively positive outlook for the economy even as they worry about the impact of persistently high unemployment.

The minutes indicate that while there is increasing confidence within the central bank about the efficacy of its tools to withdraw monetary stimulus, there is also nagging disagreement on the timing and sequencing of exit steps.

Several thought it important to begin a program of asset sales in the near future to ensure that the Federal Reserve's balance sheet shrink more quickly, the minutes of the January 26-27 meeting said.

Other officials, however, appeared worried that dumping mortgage debt into a fragile market might drive up home loan rates, compromising what tentative stabilization has been achieved in housing. Housing starts rose 2.8 percent in January, but at around a 591,000 unit per year pace, the level of activity is still barely a quarter of its boom-time peak.

U.S. stocks pared gains, the dollar rose and U.S. government debt prices extended losses after the minutes were released.

At the January meeting, the Fed held benchmark overnight interest rates near zero and reiterated a pledge to keep them extraordinarily low for an extended period.

Kansas City Federal Reserve Bank President Thomas Hoenig dissented at meeting because he was uncomfortable with the low-rate pledge. The minutes showed that he did not want to drop the vow altogether, but simply tone it down.

There was no clear evidence that his dissent had much sympathy within the central bank's policy committee. Still, there was active discussion on the principle behind it -- that the time might be nearing for a pullback.

Hoenig also argued that driving benchmark borrowing costs modestly higher in the near-term could avoid the risk of longer-term problems, including a possible spike in inflation expectations, the minutes showed.