According to minutes from the most recent Federal Open Market Committee (FOMC) meetings, policymakers argued over the merits of introducing a $600-billion long-term bond purchase program, but passed the measure anyway.

The Fed defended the stimulus program by warning that progress on maximizing employment has been “disappointingly slow.”

However, the minutes reveal that while the proposition passed by a 10-1 vote, fears were raised by certain members about commencing a second round of quantitative easing – citing that the debt purchase might not have a beneficial impact on stimulating the U.S. economy. In addition, members expressed concern about such a program stoking inflation or further deteriorating the dollar.

Not surprisingly, the sole holdout on the approving QE2 was Kansas City Fed President Thomas Hoenig, who has long wanted to start hiking the Fed Funds rate.

The minutes also revealed that the Fed considered whether or nor to target a long-term interest rate at a videoconference meeting on October 15. Although this measure was rejected, a few members said this “could be an effective way to reduce longer-term interest rates”.

In addition, the Fed reduced its economic growth forecasts for 2010 and 2011, to justify quantitative easing. The central bank now expects U.S. GDP to grow between 2.4 percent to 2.5 percent this year, versus prior growth estimate of between 3.0 percent and 3.5 percent.

For 2011, the Fed now anticipated GDP growth of between 3 percent and 3.6 percent, versus earlier growth projection of 3.5 percent to 4.2 percent.

The Fed also said that the nation’s unemployment rate will likely average between 9.5 percent and 9.7 percent this year, then decline to between 8.9 percent to 9.1 percent in 2011 (a rate higher than the 8.3 percent to 8.7 percent jobless rate it had earlier forecast for next year).

Thereafter, the Fed thinks unemployment will fall to between 6.9 percent to 7.4 percent by 2013.

Also, the FOMC slashed its core inflation estimate to between 1.1 and 2 percent for 2013.
Indeed, more than half of the members believe it will take five or six years for economic growth, inflation and unemployment to return to normalized levels. Other policymakers were even more pessimistic, warning a full economic recovery may take even longer.

The central bank committee also considered a review of its communication guidelines in order to better inform the public about monetary issues.