The American Bear

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Federal Reserve: markets fall as rift emerges over Bernanke stimulus | guardian.co.uk

A split is emerging in the Federal Reserve as officials worry that chairman Ben Bernanke’s $85bn-a-month efforts to bring down unemployment [?] may backfire.

According to the minutes of the last Fed meeting, released on Wednesday, a number of senior officials were concerned about the risks involved in the Fed’s massive bond-buying programme, and warned that the initiative might be hard to stop in the future.

The news triggered a sell-off in the US stock markets, with all the major indices falling after the minutes’ release. The Dow Jones Industrial Average closed down 108 points, erasing two days of gains.

Since the financial crisis, Bernanke has presided over a massive financial aid initiative with three rounds of quantitative easing (QE) aimed at stimulating lending and jobs growth. The latest round will reach $1.14tn before the first quarter of 2014, according to a Bloomberg survey of economists.

Bernanke is reportedly not seeking a third term as chairman, and the minutes show he clearly has the support of most Fed members. But they also provide the strongest sign yet that dissent towards his policies is growing.

“Several participants stressed the economic and social costs of high unemployment,” the minutes said. “However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases.”

According to the minutes, “a number of participants” wanted closer scrutiny of the efficacy, costs and risks of the asset-purchase programme. They appear concerned that the risks of the program may now outweigh the benefits, and suggest the committee could reduce or stop the initiative before Bernanke hits his target rate for unemployment. [++]