I expect it will be some time until the job market makes substantial progress towards our congressionally mandated maximum employment goal. Therefore, I anticipate that we will need to continue our purchases of mortgage-backed securities and longer-term Treasury securities past the end of this year and likely well into the second half of next year in order to best achieve our mandated goals. As I noted, the ending date for these programs will hinge on the performance of the economy.

Going further, the Committee might eliminate the calendar date entirely and replace it with guidance on the economic conditions that would need to prevail before liftoff of the federal funds rate might be judged appropriate. Several of my FOMC colleagues have advocated such an approach, and I am also strongly supportive. The idea is to define a zone of combinations of the unemployment rate and inflation within which the FOMC would continue to hold the federal funds rate in its current, near-zero range. For example, Charles Evans, president of the Chicago Fed, suggests that the FOMC should commit to hold the federal funds rate in its current low range at least until unemployment has declined below 7 percent, provided that inflation over the medium term remains below 3 percent. Narayana Kocherlakota, president of the Minneapolis Fed, suggests thresholds of 5.5 percent for unemployment and 2.25 percent for the medium-term inflation outlook. Under such an approach, liftoff would not be automatic once a threshold is reached; that decision would require further Committee deliberation and judgment.

“We should continue the MBS purchases into next year and continue the Treasury purchases,” Williams said to reporters today after a speech in Salt Lake City.

The purchases will be warranted until there’s evidence of “a sustained, significant improvement in the labor market,” such as a pace of payrolls growth more than 200,000 jobs a month, Williams told reporters.

“If you talked about 200,000 or 190,000 or that kind of thing, that’s not enough of an improvement,” Williams said. “I would want to see a measurable decline in the unemployment rate and a significant, sustained, well above 200,000 jobs a month on payrolls, and coherence across lots of indicators. Not one that’s strong, but all of them pointing in the same direction.”

The Fed should consider keeping interest rates low until unemployment falls "somewhat below" 7 percent, Williams told Reuters in an interview, adding that he would tolerate a rise in inflation to 2.5 percent before he would see a need to reconsider the Fed's current zero-interest-rate policy.

"It's very desirable to try to explain our policy in terms of thresholds," Williams said… "As long as inflation stays within half a percentage point of a 2 percent objective, I think you could argue for a lower unemployment rate" than the 7 percent threshold that Evans has proposed.”

When asked about the prospect of a third round of bond buying from the Fed, Lockhart said it was a "close call." However, he laid down a marker for how weak the economy would need to be before the central bank might act.

"If we were to see deterioration from this point, let’s say a persistence of job growth numbers that were well below 100,000 per month, or see signs of disinflation that could signal the onset of deflation, then there wouldn’t be much of a question about policy," Lockhart said.

Evans, one of the Fed’s most vocal advocates for more easing, reiterated his view that the central bank should say it won’t raise interest rates until either unemployment falls below 7 percent or inflation increases above 3 percent over “the medium term.”

My outlook for both economic activity and inflation relies on monetary policy remaining accommodative. Therefore, I have voted in favor of the FOMC's policy statements and actions, including the statement that economic conditions "are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014." This date is not a commitment; rather, it conveys the FOMC's collective judgment of when economic conditions would warrant an increase in the federal funds rate. If there is a substantial change in the economic outlook, or risks to the outlook, then the guidance would change appropriately.

“From a policy perspective, the assumption that a central bank can always and everywhere credibly commit to its policy rule is, I believe, also questionable,” Plosser said at a conference sponsored by Germany’s Bundesbank and the Philadelphia Fed.

“In practice, I seek ways to make policy more systematic and more credible,” Plosser said. Still, “commitment is a luxury few central bankers ever actually have, and fewer still faithfully follow.”

It’s important to recognize that our forward guidance language is a forecast of how monetary policy will turn out, not an unconditional promise. Future monetary policy decisions will depend on future economic data — and the future economic outlook. As new data arrive, the outlook for future economic conditions will change, and the outlook for the future of monetary policy should change as well.

I dissented in January because I did not believe that economic conditions are likely to warrant low interest rates all the way through 2014. (I was not a voting member last year.) My projection is that if we want to keep inflation at 2 percent, we will likely need to raise rates in 2013. Incoming data could change my assessment in either direction.

I suspect that the FOMC participants are not ready to agree on a specific policy rule or reaction function because they use different models and have different loss functions. In the meantime, it does seem feasible that participants could agree on a set of economic variables to which monetary policy should react. The academic literature suggests using rules that respond aggressively to deviations of inflation from the central bank’s target and less aggressively to deviations of output from some concept of “potential output” or some alternative measure of resource utilization. If we choose a consistent set of variables and systematically use them to describe our policy choices, the public will form more accurate judgments about the likely course of policy — thereby reducing uncertainty and promoting stability.

Dudley said the Fed might “reconsider” additional stimulus measures if the economy got worse.

He described the conditions that would prompt this: “If we get back into a situation where the U.S. economy is faltering and we’re not having the kind of economic growth putting the unemployment rate on a clearly downward trajectory. If inflation is well behaved or if inflation expectations are starting to falter.”

Lockhart said the Fed’s pledge to keep rates low through late 2014 “is very much dependent on the outlook” though currently “aligns with the outlook I see.”

The Fed’s outlook for low interest rates until late 2014 “is a forecast of what we currently anticipate we’re going to do,” and policy makers could decide to raise their benchmark rate earlier or later, depending on how the economy evolves, Dudley said.

At our last meeting in January, the FOMC decided that economic conditions are likely to warrant that we keep short-term interest rates at exceptionally low levels at least through late 2014. I want to be clear, however, that this statement is by no means a commitment that we will not raise interest rates until late 2014. Rather, it is an expression of what the Committee judges to be the earliest time that we would likely raise interest rates based on our current economic outlook. Changes to the outlook could result in interest rates rising either sooner or later than late 2014.

Let me outline how this balanced policy approach might work in practice. The Fed could sharpen its forward guidance by pledging to keep policy rates near zero until one of two events occurs.

First, this policy would account for the liquidity trap risk by communicating that we intend to keep the federal funds rate at exceptionally low levels as long as the unemployment rate is above a 7 percent threshold.

Reductions in the unemployment rate below this level would represent meaningful progress toward the natural rate of unemployment and might be a reason to lessen policy accommodation. Second, this policy would account for the risk of higher inflation —that is, we would be committed to pulling back on accommodation if inflation rises above a particular threshold.

I would argue that this policy’s inflation-safeguard threshold needs to be above our current 2 percent inflation objective. My preferred threshold is a forecast of 3 percent over the medium term.