Fed officials also debated whether to pull back the bond-buying program even before the job market shows clear improvement if concerns about its costs and risks increase.
The minutes' release at 2 p.m. sent stocks down as investors reacted to the possibility that the Fed could start tapering its economic stimulus soon.
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Full text: Minutes of the Fed's Oct. 29-30 meeting
Policymakers expected economic and labor market reports to "warrant trimming the pace of (bond) purchases in coming months," according to minutes of the Oct. 29-30 meeting. The minutes also say policymakers could "slow the pace of purchases at one of its next few meetings."
The Fed is buying $85 billion a month in Treasury bonds and mortgage-backed securities in an effort to hold down long-term interest rates and stimulate economic and job growth. Financial markets had expected the Fed to begin to taper the purchases in September, but the Fed put off the move amid weaker economic reports and the looming budget showdown in Congress.
The Fed's decision to maintain the level of bond purchases in October was widely expected, in part because the government shutdown delayed the release of economic reports. Fed policymakers also said "the housing sector slowed somewhat in recent months, and (budget cuts and tax increases were) restraining economic growth," according to the minutes.
Still, Fed officials "considered scenarios" under which they might begin to taper the purchases "before an unambiguous further improvement" in the economic and job outlook "was apparent." For example, the Fed has discussed the risks of eventual high inflation and of bubbles forming in certain markets, ! such as stocks or junk bonds, as low interest rates drive investments to riskier assets.
If the Fed's policymaking committee were to trim the purchases before the outlook substantially improved because of growing costs, it "would need to communicate effectively" about those other criteria, the minutes say.
Even more critically, Fed officials said "it might well be appropriate to offset the effects of reduced purchases by" taking other steps that could boost growth. The Fed for instance, has discussed lowering the threshold unemployment rate for when it would consider raising its benchmark short-term interest rate to 6% from 6.5%.
Last month, the minutes show, "a couple" of policymakers "favored simply reducing" that threshold, but "others noted that such a change might raise concerns about the durability" of the Fed's "commitment to the thresholds."
In a research note, Barclays Capital economist Peter Newland said the minutes "added to the sense that Fed policymakers are laying the groundwork for relying more heavily on" guidance about short-term interest rates "and less on asset purchases as the main tool of policy."
The Fed also debated how to more clearly communicate the course of its bond purchase. Some policymakers supported setting "a single variable such as the unemployment rate or payroll employment" to indicate when it will rein in the purchases.
Alternatively, some officials favored "an even simpler plan" that would announce the "total size of remaining purchases or a timetable for winding down the program."
The minutes note that such an approach would conflict with Fed statements that the reduction in purchases would hinge on economic data, "but it would be easier to communicate." It also would help address the mistaken view that trimming the purchases signals an earlier increase in the Fed's short-term rate.
Policymakers also appear to be divided about how to cut the purchases. "A number" favor "roughly equal adjustments" to the purchases of Tr! easuries ! and mortgage-backed securities."
"Some others" prefer to reduce Treasury purchases more rapidly "to signal an intention" to hold down mortgage rates.
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