As the U.S. Federal Reserve's top officials debated their decision to scale back a massive bond-buying stimulus program last month, they were keen to steer a delicate path and to make it clear that future decisions were not set in stone.
Minutes of the Fed's December 17-18 policy meeting, released on Wednesday, showed many members of the policy-setting Federal Open Market Committee wanted to proceed with caution in trimming the asset purchases.
Most also wanted to stress that further reductions were not on a "preset course" - a message that may become increasingly difficult to convey as the economy strengthens and expectations for an inexorable wind-down get baked into markets.
The U.S. central bank surprised many investors by deciding at the meeting to cut purchases by $10 billion, bringing them to $75 billion per month. Even at that pace the so-called quantitative easing program (QE) is still an aggressive effort to clear the way for investment, hiring and economic growth in the United States.
Some of the 10 voting policymakers worried about "an unintended tightening of financial conditions if a reduction in the pace of asset purchases was misinterpreted as signaling that the committee was likely to withdraw policy accommodation more quickly than had been anticipated," the minutes said.
Consequently, many judged the Fed "should proceed cautiously in taking its first action ... and should indicate that further reductions would be undertaken in measured steps."
Yields on U.S. Treasuries edged higher after the release of the minutes. Stocks finished the day flat and the dollar rose.
The central bank cited a stronger job market in its landmark decision, which amounts to the beginning of the end of the largest monetary policy experiment ever. And it tempered the move by suggesting its key interest rate would stay near zero even longer than previously promised - a nuanced policy change that also drew debate at the meeting.
The minutes showed that policymakers wanted to stress to the public that further reductions to bond buying would depend on progress in the labor market and on inflation, as well as on how well the program was judged to work in the months ahead.
Polls show that economists expect a relatively uniform withdrawal of accommodation, dropping by about $10 billion per meeting, until the bond buying is finally shelved by year end.
But as the rise in bond yields suggested on Wednesday, investors may expect an even quicker end to the program given recent growth in jobs, consumer spending, manufacturing and housing, as well as a budget deal Congress struck in December.
"With increased confidence about the sustainability in economic recovery and concerns about the declining benefit of the QE3 program, the risk is for a faster wind-down in purchases than is currently being priced into the market," said TD Securities analyst Millan Mulraine.
While there were only 10 officials voting on Fed policy in December, a broader group of 17 took part in last month's meeting.
Of those, some questioned the appropriateness of reducing the pace of stimulus while inflation remains low, near 1 percent. Some others, meanwhile, pushed for a sharper cut to the purchases and a quicker end to the program.
Fed Chairman Ben Bernanke, who is scheduled to step down on January 31 and be replaced by Vice Chair Janet Yellen, told reporters after the December 18 decision that the purchases would likely be cut at a "measured" pace through much of this year, with the program fully shuttered by late-2014.
The Fed's next policy meeting is January 28-29.
WHEN TO FINALLY RAISE RATES
To recover from the recession, the central bank has held interest rates near zero since late 2008 to spur growth and hiring. It also has quadrupled the size of its balance sheet to around $4 trillion through three rounds of massive bond purchases aimed at holding down longer-term borrowing costs.
The Fed's extraordinary money-printing has helped drive stocks to record highs and sparked sharp gyrations in foreign currencies, including a drop in emerging markets last year as investors anticipated an end to the easing.
Seeking to temper the move, the Fed added it would likely keep rates at rock bottom "well past the time" that the jobless rate falls below 6.5 percent, especially if inflation expectations remain below target - a noteworthy tweak to an earlier pledge to keep rates steady at least until the jobless rate hits 6.5 percent.
While the minutes showed a few FOMC policymakers wanted to lower that so-called threshold to 6 percent, most wanted to make only the qualitative change to avoid tying an eventual rate rise too tightly to the unemployment rate alone.
That group wanted to "clarify that a range of labor market indicators would be used when assessing the appropriate stance of policy once the threshold had been crossed," the minutes said.
"There was a lot of consensus building going on," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
"This is pointing out there will be a continuity of policy and the Fed is going to err on the side of caution when it comes to trimming asset purchases and to raising rates when it eventually gets to that point."
U.S. joblessness dropped to a five-year low of 7.0 percent in November. The December data is due on Friday.
Despite the Fed's assurances that it will continue to keep borrowing costs low, market rates are creeping up as traders bet on an earlier Fed rate hike.
Traders now see April 2015 as the first likely meeting at which the Fed will start to raise rates, three meetings sooner than they had expected last month, on the back of increasingly rosy economic data.
They added to those bets after the minutes were released, with most now expecting the Fed to have hiked its main policy rate to 1 percent by October 2015.
(Reporting by Jonathan Spicer and Ann Saphir; Additional reporting by Rodrigo Campos; Editing by Andrea Ricci and Jonathan Oatis)