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Fed Focus On Jobs Signals No QE Cooling

Even before the disappointing March jobs report, central bankers indicated hiring outweighed growing fears over the potential side effects of more bond purchases, suggesting stimulus will continue unabated for longer.

Minutes from the Federal Reserve's March 19-20 policy meeting revealed extensive debate on the risks of adding $85 billion a month in quantitative easing to a balance sheet that already tops $3.2 trillion.

But most policymakers remained focused on job growth.

"Many participants emphasized that any decision to reduce the pace of purchases should reflect both an improvement in their overall outlook for labor market conditions ... and their confidence in the sustainability of that improvement," according to the minutes.

The Fed's easy money policies continue to help stocks. The major averages soared to record or longtime highs Wednesday, possibly further cheered by "a couple" of central bankers supporting additional QE if job growth didn't hold up.

Policymakers were generally upbeat on economic trends, with some not convinced that QE was producing diminishing returns. A few see bigger benefits vs. prior rounds, as looser credit conditions let more people take advantage of low rates.

From October- February, job gains averaged just over 200,000. Some dovish Fed officials hinted at tapering QE, perhaps starting this summer.

Then the Labor Department said last week that just 88,000 jobs were created in March.

But that isn't stopping Fed officials from worrying about QE's potential to destabilize the financial system, distort markets, make QE withdrawals more dangerous, and slash the Fed's income from its bond holdings.

Cleveland Fed President Sandra Pianalto this week said trimming QE would reduce risk and still offer "meaningful support" to economic and job growth.

The March meeting shows Chairman Ben Bernanke, who is expected to step down next year, still holds sway.

"The picture emerges of a committee that is truly being driven from the top with a reluctant supporting cast more worried about the unintended consequences of unprecedented QE policy," wrote Julia Coronado, North America chief economist at BNP Paribas, in a research note.

The minutes also point to the Fed gradually drawing down the QE program, based on how the economic data come in, said Dan Seiver, chief economist at Reilly Financial Advisors.

"There's no reason you have to take a big chunk out of it at once," he said. "Wall Street would prefer that."