Minutes of the Fed's Sept. 17-18 meetings released Wednesday show that the Fed wrestled with the decision, even though the panel ended up voting 9-1 to keep the purchases at the current level of $85 billion a month. The bond purchases are intended to keep long-term interest rates low to encourage more borrowing and spending.
According to the minutes, all members but one thought the Fed should see more evidence that the economy's modest improvement could be sustained. And several noted weaker employment numbers, a rise in interest rates and potential threats from a budget impasse in Washington.
Still, some raised concerns that inaction would undermine the Fed's effectiveness in communicating its next step. Many economists had predicted some reduction in the purchases. And some Fed members made comments ahead of the meeting that suggested such a move was likely.
"For several members, the various considerations made the decision to maintain an unchanged pace of asset purchases at this meeting a relatively close call," the minutes stated.
The Fed released the minutes shortly before President Barack Obama was expected to formally nominate Janet Yellen, the Federal Reserve's vice chair, to replace Ben Bernanke as chairman. If confirmed by the Senate, Yellen would take over at a critical time for the economy and the Fed's policies.
The Fed surprised markets after last month's meeting by not reducing the bond buys. It made that decision after it lowered its economic growth forecast for this year and expressed concerns about higher interest rates and the prospect of budgetary gridlock in Washington.
Many economists now believe the Fed will maintain the bond purchases at their current level into next year. That's largely because Congress has been at an impasse over the budget, leading to the first partial shutdown of the government since 1996.
A prolonged shutdown would likely slow economic growth further. And if Congress fails to raise the $16.7 trillion borrowing limit later this month, the U.S. could default on its debt for the first time. That would push up interest rates, disrupt global financial markets and possibly push the U.S economy back into recession.
Analysts predict economic growth slowed in the July-September quarter to an annual rate of 2 per cent or less. Many had thought that growth would accelerate in the final three months of the year to a rate above 2.5 per cent. But with each day the government stays shuttered, growth is likely to weaken a little more.
The shutdown has also delayed key economic reports, including the September employment report that was due last week. Without those reports, the Fed will have trouble getting a read on whether the economy and job market have made progress since it last met. That's another reason economists expect the Fed will wait until next year to slow its stimulus.
The Labor Department did report last week that unemployment benefits are still hovering near six-year lows. And average U.S. rates on fixed mortgages have fallen for three straight weeks to their lowest level in three months, in part because the Fed opted to continue buying bonds at its current pace.