By Pedro da Costa and Mark Felsenthal
WASHINGTON (Reuters) - The U.S. Federal Reserve considered even more-drastic options to stimulate the economy before it settled on buying $600 billion in bonds, according to minutes of a meeting released on Tuesday that showed a resolute but fractured central bank.
Fed officials sharply revised down their forecasts for economic growth next year, and saw unemployment at significantly higher levels than they had the last time they issued official forecasts in June.
Most participants in the Federal Open Market Committee, the Fed's policy-setting arm, backed the plan to ramp up asset purchases in an effort to bring down long-term interest rates and try to nudge economic activity up a notch.
In a rare, unscheduled meeting held via videoconference on October 15, policymakers debated a range of new avenues for policy, including the possibility of targeting a specific level of bond yields and enhancing communications by instituting news briefings by Chairman Ben Bernanke.
The U.S. economy grew 2.5 percent in the third quarter, the Commerce Department reported on Tuesday, a bit faster than a previous estimate of 2 percent, but still not quick enough to put a dent in the nation's 9.6 percent unemployment rate.
Against that backdrop, the Fed minutes depicted the November policy move as in part an insurance policy against the threat of further disinflation -- and potentially even a corrosive bout of deflation.
Still, not all Fed officials believed the new policy, which has raised controversy both at home and abroad, would help lift the economy out of its doldrums. In fact, "several" participants believed a further increase in Fed credit to the banking system, already around $2.3 trillion following an array of emergency measures undertaken during the financial crisis, risked future inflation.
One particular passage in the minutes nicely captured the internal divisions that could make it more difficult for the committee to extend its easing policies if it decides to do so. Its current bond-buying program is set to expire at the end of June.
"A few participants expected that continuing resource slack would lead to some further disinflation in coming years," the minutes said. "However, a few others thought that the exceptionally accommodative stance of monetary policy, coupled with rising prices of energy and other commodities ... made it more likely that inflation would increase."