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Fed Sparks A Debate: When To Reduce Stimulus?

So what's changed since June?

Not much. Employers have added an average of 180,000 jobs a month this year, about the same as last year and in 2011. From April through June, the economy grew at a 2.5 percent annual rate, little changed from its 2.8 percent rate in the quarter when the Fed began its bond buying.

Growth and hiring remain modest by the standards of a robust economic recovery. But they've been pretty consistent for the past few years.

The Fed's efforts, meanwhile, are more appropriate for a recession or other economic emergency, some economists argue.

"The Fed has gone to great lengths to describe its (bond purchases) as extraordinary economic stimulus," says Mark Vitner, an economist at Wells Fargo Securities. "It's not something you use when the economy is just struggling."

The Fed's decision to delay also suggests it's dismissive of concerns that its policies might be inflating dangerous bubbles in assets like stocks or real estate in the United States or overseas. By keeping mortgage rates low, the Fed has sought to accelerate the housing recovery. It's also tried to drive up stock prices. Yet the longer it continues to do so, the greater the risk that it will go too far.

Vitner notes that home prices have jumped 12 percent in the past year even as the number of homeowners has declined. And stock indexes closed at record highs Wednesday. Home and stock prices may have risen too far too fast considering the state of the economy.

The Fed's policies may have made the housing recovery appear stronger than it is: Much of the increase in sales and prices has been fueled by investors. First-time home buyers, who typically play a vital role in driving housing recoveries, remain largely on the sidelines. They face tighter credit standards, which the Fed's policies haven't addressed.

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