Instant View: Fed debated more aggressive action

NEW YORK (Reuters) - The U.S. Federal Reserve considered even more-drastic options to stimulate the economy before it settled on buying $600 billion in bonds, according to minutes of a meeting released on Tuesday that showed a resolute but fractured central bank.

KEY POINTS: * Fed officials sharply revised down their forecasts for economic growth next year, and saw unemployment at significantly higher levels than they had the last time they issued official forecasts in June. * Most participants in the Federal Open Market Committee, the Fed's policy-setting arm, backed the plan to ramp up asset purchases in an effort to bring down long-term interest rates and try to nudge economic activity up a notch. * In a rare, unscheduled meeting held via videoconference on October 15, policymakers debated a range of new avenues for policy, including the possibility of targeting a specific level of bond yields and enhancing communications by instituting news briefings by Chairman Ben Bernanke.

COMMENTS:

JEFF KLEINTOP, CHIEF MARKET STRATEGIST, LPL FINANCIAL, BOSTON:

"It was pretty much as expected. They did take their forecast down but it still is notable it's north of where most private forecasters are on 2011... That may mean maybe less aggressive action from the Fed than somewhat expected.

"One of the interesting things was how many times they mentioned the dollar. They mention that among the positive effects of quantitative easing that they noted was a lower value in the dollar. So clearly the Fed has that in mind."

DOUG ROBERTS, CHIEF INVESTMENT STRATEGIST FOR CHANNEL CAPITAL RESEARCH, SHREWSBURY NEW JERSEY:

"What's coming out in the minutes is that the inflation doesn't look like it's going to be a major problem and the main focus should be on the unemployment level. It is basically saying that we may have some problems with prices at some point in the future but we do have a serious problem with the unemployment and that is what we are going to focus on."

PAUL BALLEW, SENIOR VICE PRESIDENT AND CHIEF ECONOMIST, NATIONWIDE INSURANCE, COLUMBUS, OHIO

"The tone in regards to the recovery is consistent with other forecasts. They've downgraded their expectations a bit, seeing a moderate recovery with low inflation and concerns about the labor market. The economic discussion isn't focused on whether the recovery will sustain itself but on the pace of recovery."

MARK VITNER, SENIOR ECONOMIST, WELLS FARGO SECURITIES, CHARLOTTE, NORTH CAROLINA:

"Just how divided the Fed was with QE2 came as a surprise. Clearly the decision was driven by Bernanke. While the Fed is a deliberative group, it also undermines the effectiveness of the program. In fact, QE2 is off to a slow start because of this divisiveness. Ultimately, the Fed purchases and slow economy will drive rates back to their lows."

ZACH PANDL, ECONOMIST, NOMURA SECURITIES INTERNATIONAL, NEW YORK:

"They still are quite optimistic about the economy relative to consensus forecast, forecasting well in excess of 3 percent growth next year.

"Instead of lowering their inflation forecast on the weaker growth outlook they actually raised their core inflation forecast, a bit surprising there, and suggests the FOMC does not expect much further disinflation from here."

"They continued to stress the costs and benefits of further quantitative easing, they clearly saw the benefits outweighing the costs at this meeting but as Chairman Bernanke has said in public it does seem like they are going to be pursuing that in a more measured way, looking at the potential costs of quantitative easing and not pursuing more easing aggressively at this time.

"Stopping the current program is very unlikely, most likely is that if their forecast is met next year, if we are growing by 3 percent by the middle of next year, then they will probably pause the program."

STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO, GREENWICH, CONNECTICUT:

"You could understand why they did (quantitative easing) what they did in the fact that they did increase their unemployment expectations, they did lower their guidance on future of GDP growth.

"They lowered their expectations and they did talk about how the market is more vulnerable to unforeseeable shocks."

SEAN INCREMONA, ECONOMIST, 4CAST LTD, NEW YORK:

"There was not really anything super-surprising. We did see growth expectations revised lower and unemployment higher. At first glance not really seeing too much changes on the inflation outlook, but it seems like their reason for acting was the fact that the benefits of the program exceeded the costs and that the economy is vulnerable."

TOM PORCELLI, U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

"I don't see anything meaningful in the headlines. This is one of those set of minutes where we're just going to have to read through it with a fine-toothed comb but I don't think the headlines are really capturing the nuances."