Fed members split over economic outlook

NEW YORK (CNNMoney) -- Policymakers at the Federal Reserve were divided in their outlooks for the economy, suggesting that the central bank is unlikely to change direction any time soon.

Some of the policymakers at the Dec. 14 meeting argued that the U.S. economy could start growing more rapidly than expected, bringing unwanted levels of inflation, according to minutes released Tuesday.

But other members of the Fed's decision-making body worried that the economy is at risk of slowing due to further weakening of the housing markets, sharp budget cuts by state and local governments and a new shock to the banking system caused by problems in Europe. They worried that prices would remain weak, although several voiced the belief that the risk of deflation has receded.

The December meeting was the first held after the Fed had announced plans in November to buy $600 billion in additional long-term Treasuries.

The policy has been controversial with some economists, conservative politicians and overseas finance officials who argue it should be ended before reaching the $600 billion target. But the minutes showed that the Fed is unlikely to pull the plug early on the effort.

"While the economic outlook was seen as improving, members generally felt that the change in the outlook was not sufficient to warrant any adjustments to the asset-purchase program," said the Fed.

The consensus view of policymakers was that slow growth would continue in the near term, with little improvement in the unemployment rate, justifying the continuation of the bond-buying program for now.

"Members emphasized that the pace and overall size of the purchase program would be contingent on economic and financial developments; however, some indicated that they had a fairly high threshold for making changes to the program," the minutes read.

The Fed had hoped to spur greater economic activity through lower rates that it expected to accompany the asset purchases, but yields on long-term Treasuries as well as mortgage rates have risen since the Nov. 3 announcement.

The Fed blamed higher rates on investors' expectations for a larger purchase of Treasuries than the $600 billion that was ultimately announced. But it defended the program as having lowered rates below where they would be without its intervention.

The Fed's economic outlook will get further attention this Friday morning when Chairman Ben Bernanke appears before the Senate Budget Committee.