The Federal Reserve will keep buying bonds indefinitely to try to keep long-term borrowing costs low. It's just not clear how long indefinitely will be.Minutes of the Fed's last policy meeting show that officials were divided about when to halt the purchases.Some of the 12 voting members thought the bond purchases would be needed through 2013. Others felt they should be slowed or stopped altogether before year's end. This group worries that the bond buying is keeping rates so low for so long that it could ignite inflation or encourage speculative buying of risky assets.The Fed last month ended up approving open-ended purchases of $85 billion a month in Treasurys and mortgage bonds to replace an expiring bond-purchase plan and maintain its level of purchases.The minutes covered the Fed's Dec. 11-12 meeting. In a statement after the meeting, the Fed said it planned to keep a key interest rate at a record low even after unemployment falls close to a normal level — which it said might take three more years…The minutes showed that "several" Fed policymakers thought the bond buying should probably stop well before 2013 ends.
Interest rate contracts have become increasingly short-term in recent years. Notional amounts of contracts with maturities of more than five years fell by 9% in the first half of 2012 to $117 trillion, or 24% of total interest rate contracts. By contrast, the volume of contracts with a maturity of up to one year went up by 4% to $207 trillion, or 42% of the total. In the mid- and late 2000s, longer-term contracts accounted for up to 35% of all interest rate contracts.