Federal Reserve officials saw diminishing economic benefits from the central bank’s bond buying program and expressed concern about risks to financial stability, according to minutes of their last meeting, when they took the first step to cut the pace of purchases.

“A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue,” the record of the Federal Open Market Committee’s Dec. 17-18 meeting showed. Participants also were “concerned about the marginal cost of additional asset purchases arising from risks to financial stability” citing the potential for “excessive risk-taking in the financial sector.”

Policy makers will gather Jan. 28-29 to consider the next step in their strategy of gradually reducing the pace of bond buying as the economy strengthens. The minutes didn’t describe a set schedule for the pace of asset-purchase reductions, although “a few” officials mentioned the need for a “more deterministic path.”

“Many commented that progress to date had been meaningful, and some expressed the view that the criterion of substantial improvement in the outlook for the labor market was likely to be met in the coming year if the economy evolved as expected,” the minutes showed. At the same time, “several” officials noted that “a range of other indicators had shown less progress toward levels consistent with a full recovery in the labor market, and that the projected pickup in economic growth was not assured.”

The committee cut monthly purchases to $75 billion in December, from $85 billion, citing improvement in the labor market that pushed the jobless rate down to a five-year low of 7 percent.

Housing, Jobs

Recent progress on jobs, manufacturing and housing has affirmed the FOMC’s view that the economy is improving enough take the first step toward exiting stimulus that has swelled the Fed balance sheet to more than $4 trillion.

Fed Chairman Ben S. Bernanke on Dec. 18 said the Fed will “continue to do probably at each meeting a measured reduction” in the pace of purchases. The FOMC will likely taper buying in $10 billion increments over the next seven meetings before ending them in December, according to a Dec. 19 Bloomberg News survey of economists.

Policy makers met in the final weeks of Bernanke’s eight- year tenure, which ends Jan. 31. Vice Chairman Janet Yellen, an architect of the unprecedented easing, was confirmed this week by the Senate to succeed Bernanke.

Rates Climb

Interest rates climbed after the Fed’s Dec. 18 tapering announcement, with the yield on the 10-year Treasury note rising to 3.03 percent on Dec. 31, a more than two-year high. The average 30-year fixed-rate mortgage rose to 4.53 percent last week from as low as 3.35 percent in May, according to Freddie Mac data.

The FOMC lowered its target interest rate to near zero in December 2008 and says it will stay there as long as the unemployment rate remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent.

The committee strengthened that pledge last month, saying it “likely will be appropriate” to hold the main interest rate near zero “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.”

Officials discussed and rejected the idea of lowering the unemployment threshold, opting instead to “provide qualitative guidance regarding the Committee’s likely behavior after a threshold was crossed.”

Bolstering Recovery

Bernanke has said bond buying by the Fed helped bolster the recovery, reducing unemployment in November to a five-year low of 7 percent. Monetary stimulus last year helped push up the Standard & Poor’s 500 Index 30 percent to a record 1,848.36 on Dec. 31.

Bernanke said in a Jan. 3 speech that the country may be poised for faster growth.

“The combination of financial healing, greater balance in the housing market, less fiscal restraint, and, of course, continued monetary policy accommodation bodes well for U.S. economic growth in coming quarters,” he said in Philadelphia.

Recent economic reports have reinforced Bernanke’s outlook.

Companies added more workers than projected in December as U.S. employers grew more optimistic about the prospects for demand, a private report based on payrolls showed.

The 238,000 increase in employment was the biggest since November 2012 and followed a revised 229,000 gain in November that was stronger than initially estimated, according to the ADP Research Institute in Roseland, New Jersey.

Factory Gains

Manufacturing grew last month at the second-fastest pace in more than two years, fueled by a gain in orders that will help propel the expansion, according to a report last week from the Institute for Supply Management.

Outlays for construction projects climbed in November to the highest level since March 2009 as homebuilding and non- residential spending made up for government cutbacks, according to data from the Commerce Department.

U.S. house prices rose in October from a year ago by the most in more than seven years, according to the S&P/Case-Shiller index of property prices in 20 cities. All 20 cities in the index showed a year-over-year gain, led by a 27.1 percent advance in Las Vegas.

Low borrowing costs, an improving economy and labor market gains propelled the auto industry in 2013 to its best year since 2007, with U.S. auto sales industry-wide increasing 7.6 percent to 15.6 million.

“The biggest reason why people are feeling better about the economy and returning to showrooms is the progress that has been made on the jobs front,” Kurt McNeil, GM’s vice president of U.S. sales operation, said in a Jan. 3 teleconference. “That’s the key to releasing even more pent-up demand in 2014.”