INSTANT VIEW: Fed had doubts about more asset buying

NEW YORK (Reuters) - Federal Reserve policy-makers opted to hold fire on additional asset purchases at their meeting last month because of doubts about how markets would react to more buying, documents on Wednesday showed.

KEY POINTS: * Fed Minutes: effect of further asset purchases on economy, inflation expectations uncertain * Most policy-makers believed downside risks to economy had shrunk but still significant * Most believed core inflation to remain subdued for some time * Recent rises in commodity prices likely to raise inflation over near term * Most policy-makers expect employment situation to be downbeat for some time * Most expected economy to take 5-6 years to resume trend growth, employment * Economic contraction slowing, output seen growing slowly in second half * A few policy-makers concerned that inflation expectations could rise with expanded balance sheet

COMMENTS:

MARC PADO, U.S. MARKET STRATEGIST, CANTOR FITZGERALD & CO, SAN FRANCISCO:

"We are probably at the point were the inventory depletion is at its lowest, so we are balanced. The sales and production are starting to balance, which means that any increase in orders is immediately accretive to the bottom line.

"With the Fed saying that things are looking a little bit better than they thought, that means profits will uniformly look better than everybody thought."

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS, NEW YORK:

"There was a substantial improvement in the Fed's projections for this year. They are recognizing the reality that the economy is essentially flatlined in the last three, or possibly six months.

"The possibility of a major reduction in the pace of inventory cuts in the second quarter, combined with some added spending related to the Obama stimulus package, might result in the long-awaited zero figure for the second quarter. That, combined with modest gains in the second half of this year, explained the significant upgrade of the numerical forecast.

"That said, these numbers did not include the disappointing June employment figures and the very disappointing consumer sentiment figures which would probably make their forecast, were it made today, a little worse than the one made in late June. The Fed, as well as other private analysts, is concerned that if the consumer retreats, as was hinted at in the latest Reuters/UMichigan sentiment survey, they might have to throw their forecast out the window and move back to a more pessimistic outlook."

RICHARD FRANULOVICH, SENIOR CURRENCY STRATEGIST, WESTPAC, NEW YORK:

"At face value, the flavor and tone of the FOMC minutes seemed to be downbeat. Granted, the Fed upgraded its GDP forecast for the U.S., but based on the headlines, it looks like the Fed still has misgivings about the economy. That tells me that it is in no rush to exit its current quantitative easing. That should be negative for the dollar, but positive for equities."

DAN FARETTA, SENIOR MARKET STRATEGIST, LIND-WALDOCK, CHICAGO:

"It's looking fairly positive, their outlook is a little better than it was 6 months ago. The market has been beaten down a lot lately and we're getting a decent rally now. The rally came on some strong earnings and the Fed minutes are adding to that boost.

"It doesn't look like anything will turn around right away in the economy, but over the next 3, 6 or 12 months the outlook is starting to appear fairly more positive than it was 6 months ago."

BRIAN KIM, CURRENCY STRATEGIST, UBS, STAMFORD, CONNECTICUT:

"It doesn't look like there were that many surprises. They bumped up the unemployment to around 10 percent, but unless we see some surprise details on asset purchases, I don't think it's going to change the market's direction today.

"After the last nonfarm payrolls report, I think people have come to realize any recovery is going to chop along. Five to six years (until the economy resume trend growth) is maybe a bit longer than I'd have thought, but Fed officials have done a good job of laying out their views. It's not a surprise that they're being cautious."

KATHY LIEN, DIRECTOR OF CURRENCY RESEARCH, GFT FOREX, NEW YORK:

"What we are seeing in these minutes is that first of all the unemployment forecast is notched up significantly. The Fed is openly admitting that unemployment will exceed 10 percent this year. This is a significant revision of the April forecast but we did not a major sell off in currencies as the GDP forecast was revised higher. These offset themselves but the psychological importance of the 10 percent unemployment rate will outweigh the upward revision of GDP."

MARKET REACTION: STOCKS: U.S. stock indexes hold gains BONDS: U.S. Treasury debt prices hold losses DOLLAR: U.S. dollar pares gains versus yen