The economy is improving, but not enough to cut back on the government bond-buying program just yet, according to the minutes from the Fed's latest meeting.When the Fed met last month, it -- like many economists and business executives -- saw signs of improvement in the U.S. economy. But according to the minutes from the Fed's meeting, released Tuesday, the improvement wasn't enough to justify tapering its quantitative-easing bond-buying program, also known as QE2.

The plan, announced in November, calls for the government to purchase $75 billion worth of bonds per month -- and up to $600 billion in assets through June -- to help stimulate the economy. The December minutes indicate that some members of the Fed's board have "a fairly high threshold" for making changes to the central bank's controversial quantitative-easing program.

At that meeting, the Fed also reiterated its near-zero interest rate policy, underscoring that it plans to keep rates "exceptionally low" for an "extended period." The low-interest rate policy already has been in effect for about two years.

The release of the December minutes had only a slight impact on U.S. markets. The Dow Jones Industrial Average, down about 5 points before the minutes' release, was up 15 points to 11,686 about a half-hour later. In the bond market, bond prices were virtually unchanged, with the interest rate on 10-year U.S. Treasury Note rising only 0.01 of a percentage point to 3.33%.

A Stronger U.S. Economy

Concerning economic conditions, the Fed concluded that "economic activity was increasing at a moderate rate, but that the unemployment rate remained elevated," with a low labor-force-participation rate and employment-population ratio. On the upside, the Fed said that the demand for labor had grown in recent months, with the services sector continuing to make up the bulk of the private-sector job gains.

The Fed also noted that consumer spending had picked up in October and November, with exports rising, and that the recovery in business spending and equipment (including software) purchases appeared to be continuing. Industrial production also increased at a solid pace in October, making widespread advances, according to the minutes.

Still, inflation remains low, the Fed concluded. In October, the personal consumption expenditures index (PCE), which measures consumer inflation, reached its lowest level in the past year. Prices for so-called "core" goods and services, which exclude food and energy, also fell in that time. Unsurprisingly, "labor cost pressures were still restrained," the Fed added.

Meanwhile, the housing market remains weak. "Activity in the housing sector was still quite depressed," the Fed said. The sector continues to be hurt by "the persistence of a large excess supply of existing homes on the market and tight credit conditions for construction," which have apparently constrained the building of new homes.

A Small Victory

Overall, the minutes reinforced recent economic data showing a strengthening U.S. economic expansion, modest labor market improvement and little progress on the housing front. The conclusions are hardly cause for investors to celebrate. But after the talk of potential deflation and a double-dip recession that permeated financial circles in late 2010, they do represent a small step forward.

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