"We must make our exit from the bond-buying programme quick," Richmond Fed President Jeffrey Lacker, one of the Fed's most fiscally conservative officials and a persistent critic of the latest round of bond buying, said in WirtschaftsWoche.

"An end to these bond purchases came into sight at the latest Fed meeting," said Lacker.

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"First of all we should end the monthly purchases of mortgage bonds as quickly as possible," Lacker said in the interview. It was not the central bank's role to give any sector preferential support, he said.

Lacker said the United States had made hardly any progress in cutting its debt and had instead only come up with temporary solutions for several months at a time. He said he hoped the Fed's planned scaling back of bond purchases this year and rising interest rates would force the U.S. Congress to agree more quickly on reducing debt. "We need a sustainable solution and the sooner the better," he said.

As reported by Reuters.

In response to a question about the reasons for the back-up in interest rates:

There are essentially three reasons why we've seen some increase in longer-term rates, although, I would emphasize they remain relatively low.

The first is that there's been some better economic news. As investors see brighter prospects ahead, interest rates tend to rise. For example, we saw a relatively good labor-market report, which was accompanied by a pretty sharp increase in interest rates on that day.

Second reason for the increase in rates is probably the unwinding of leveraged, and perhaps successfully risky positions in the market. It's probably a good thing to have that happen, although, the tightening that's associated with that is unwelcome. But at least a benefit of it is, is that some concerns about building financial risks are mitigated in that way, and probably make some FOMC participants more comfortable with using this tool going forward.

The third reason for the increase in rates has to do with Federal Reserve communications and market interpretations of Fed policy. We've tried to be very clear from the beginning. And I've reiterated again today that we've not changed policy.  We are not talking about tightening monetary policy. Merely, we've been trying to lay out the same sequence which I just described to you about how we're going to move going forward, and how that will be tied to the economy. But I want to emphasize that none of that implies that monetary policy will be tighter at any time within the foreseeable future.

I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course. On the one hand, if economic conditions were to improve faster than expected, and inflation appeared to be rising decisively back toward our objective, the pace of asset purchases could be reduced somewhat more quickly. On the other hand, if the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions--which have tightened recently--were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer. Indeed, if needed, the Committee would be prepared to employ all of its tools, including an increase the pace of purchases for a time, to promote a return to maximum employment in a context of price stability.

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As I have observed on several occasions, the phrase "at least as long as" is a key component of the policy rate guidance. These words indicate that the specific numbers for unemployment and inflation in the guidance are thresholds, not triggers.. For example, if a substantial part of the reductions in measured unemployment were judged to reflect cyclical declines in labor force participation rather than gains in employment, the Committee would be unlikely to view a decline in unemployment to 6-1/2 percent as a sufficient reason to raise its target for the federal funds rate. Likewise, the Committee would be unlikely to raise the funds rate if inflation remained persistently below our longer-run objective. Moreover, so long as the economy remains short of maximum employment, inflation remains near our longer-run objective, and inflation expectations remain well anchored, increases in the target for the federal funds rate, once they begin, are likely to be gradual.

“I don’t want to do it all at once, but I think we should begin to taper very soon and hopefully end it by the end of this year,” Plosser said today in an interview in Jackson Hole, Wyoming. “That would be a healthy thing for the economy. We can do it gradually.”

Fed Chairman Ben S. Bernanke said last month the Fed is on track to begin reducing its bond buying later this year and halt the program by around mid-2014 if the economy performs in line with central bank forecasts. Plosser, who doesn’t vote on monetary policy this year, has repeatedly spoken out against additional easing by the Fed.

“I’d like for us to start in September” to taper the purchases, Plosser said in the Bloomberg Television interview with Michael McKee to air July 15. “We don’t want to create another housing boom,” and “we have to be careful of the unintended consequences of our policies.”

In my view, rather than try to maintain discretion, policymakers would achieve better economic outcomes and greater clarity by taking a systematic approach to policy. But how do we get there from here? I think we could vastly improve policy going forward by doing three things, which would begin to normalize monetary policy.

• The first step is to wind down our asset purchases by the end of the year in a gradual and predictable manner. As I said, I see little if any benefit from these purchases, and growing costs.
• The second step is for the FOMC to commit to its forward guidance on the fed funds rate path, that is, to begin treating the 6.5 percent unemployment rate and the 2.5 percent inflation rate in the guidance as triggers rather than thresholds.
• The third part of the strategy is to provide information on how our interest rate policy will evolve after the trigger is reached. A commitment to a robust policy rule, perhaps consistent with the way policy was conducted prior to the crisis, would provide needed clarity on how the Committee intends to vary its policy in response to changes in economic conditions.

These steps form part of a systematic approach to policymaking. They embody clarity and commitment. By helping the public and market participants form more accurate judgments about the future course of policy, systematic policymaking can improve the efficacy of monetary policy.

“Pulling back on accommodation as inflation is sinking is not the right combination,” Bullard, who votes on monetary policy this year, said today in a Bloomberg Television interview with Michael McKee to air July 15. “I’d like to see us do more” to ensure inflation doesn’t continue to slow.

Bullard last month dissented against a pledge by the Federal Open Market Committee to maintain its current level of bond buying, saying the panel should “signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings.”

Price gains have been “very low,” Bullard said today. “I’d at least like to see inflation tick up a little or get some kind of reassurance” that it “will come back toward our target.”

As Chairman Bernanke stated in his press conference following the FOMC meeting, if the economic data over the next year turn out to be broadly consistent with the outlooks that the FOMC sees as most likely, which are roughly similar to the outlook I have already laid out, the FOMC anticipates that it would be appropriate to begin to moderate the pace of purchases later this year. Under such a scenario, subsequent reductions might occur in measured steps through the first half of next year, and an end to purchases around mid-2014. Under this scenario, at the time that asset purchases came to an end, the unemployment rate likely would be near 7 percent and the economy’s momentum strengthening, supporting further robust job gains in the future.

As I noted last week in our regional press briefing, a few points deserve emphasis. First, the FOMC’s policy depends on the progress we make towards our objectives. This means that the policy—including the pace of asset purchases—depends on the outlook rather than the calendar. The scenario I outlined above is only that—one possible outcome. Economic circumstances could diverge significantly from the FOMC’s expectations. If labor market conditions and the economy’s growth momentum were to be less favorable than in the FOMC’s outlook—and this is what has happened in recent years—I would expect that the asset purchases would continue at a higher pace for longer.

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[E]ven under this scenario, a rise in short-term rates is very likely to be a long way off.  Not only will it likely take considerable time to reach the FOMC’s 6.5 percent unemployment rate threshold, but also the FOMC could wait considerably longer before raising short-term rates.  The fact that inflation is coming in well below the FOMC’s 2 percent objective is relevant here.  Most FOMC participants currently do not expect short-term rates to begin to rise until 2015. 

I would like to emphasize three points regarding the potential timeline for adjusting our asset purchase program.  First and foremost, any adjustments to our purchase program will depend on the new economic data that come in.  In other words, we will modify our plans as appropriate if economic developments turn out differently than we currently expect.

Second, reducing or even ending our purchases does not mean the Fed will be tightening monetary policy.  Not at all.  The amount of stimulus our purchase program creates depends on the size of our securities holdings, not the amount we buy each month.  Even if we start reducing our purchases later this year, our balance sheet will continue to grow, providing an increasing amount of stimulus.  That is, as long as we are adding to our holdings of assets, we are adding monetary stimulus to the economy.

Third, future adjustments to our asset purchases in no way alter or undermine our approach of maintaining the current very low federal funds rate at least as long as the unemployment rate is above 6½ percent and the other conditions regarding inflation and inflation expectations are met.  Indeed, as the FOMC projections released last week show, a large majority of Committee participants don’t expect the first increase in the federal funds rate to occur until 2015 or later.  And the median projected value of the federal funds rate at the end of 2015 is only 1 percent.

I did, however, think it wise of Chairman Bernanke to clarify the Committee’s expectations regarding how the pace of asset purchases is likely to evolve. Bond and stock markets fell sharply in response, but that should not be too surprising. The Chairman’s statement forced financial market participants to re-evaluate the likely total amount of securities the Fed would buy under this open-ended purchase plan — in other words, how much liquor would ultimately be poured into the punch bowl. Market participants also had to reconsider their estimate of when the Federal Reserve would begin to remove the punch bowl by raising interest rates. These reassessments appear to have warranted price changes across an array of financial assets. As market participants gain additional insight from the words of Federal Reserve officials or by policy actions in coming quarters, further asset price volatility seems likely.

"Seven percent is an indicative goal," Mr. Stein said to the Council on Foreign Relations in New York. "On the one hand, we'd like some ability to have some specificity, and to do that you have to pick a number ... but it's an attempt to provide clarity. It doesn't mean we're going to shut out other relevant data on the labor market."

As the Chairman made clear, there is no "predetermined" pace of reductions in the asset purchases, nor is the stopping point fixed.

The pace of purchases, the composition of purchases, and the ultimate size of the Fed's balance sheet still depend on how economic conditions evolve. All elements of the asset purchase program will be considered on a meeting-by-meeting basis in light of the incoming data and economic outlook.

In my view, the comments by the Chairman do not constitute an enormous shift in policy. The asset purchase program is best thought of as a supplement to the FOMC's interest rate policy, designed to add a little more heft to efforts in support of ongoing recovery. As I said a moment ago, I still anticipate that the very low interest rate policy will remain in place for a considerable time after the end of asset purchases, and thus policy will remain highly accommodative.

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If the broad economy evolves close to the outlook I laid out—which itself is close to the composite forecast of the 19 FOMC participants—then the economy will be on track to a better place. In that circumstance, I think the position that the economy does not need quite as much stimulus is fully supportable.

I want to emphasize the importance of data over date. If the Committee's economic outlook is broadly realized, there will likely be a moderation in the pace of purchases later this year. If the performance of the economy is weaker, the Committee may delay before moderating purchases or even increase them. If the economy strengthens faster than the Committee anticipates, the pace of purchases may be moderated somewhat more quickly. The path of purchases is in no way predetermined; we will monitor economic data and adjust our purchases as appropriate.

If the economic data over the next year turn out to be broadly consistent with the outlooks that the FOMC sees as most likely, the FOMC anticipates that it would be appropriate to begin to moderate the pace of purchases later this year. Under such a scenario, subsequent reductions might occur in measured steps through the first half of next year, and an end to purchases around mid-2014. Under this scenario, at the time that asset purchases came to an end, the unemployment rate likely would be near 7 percent and the economy’s momentum strengthening, supporting further robust job gains in the future.

If labor market conditions and the economy’s growth momentum were to be less favorable than in the FOMC’s outlook—and this is what has happened in recent years—I would expect that the asset purchases would continue at a higher pace for longer.

“This asset-purchase tapering is just slowing the rate at which we’re increasing the balance sheet,” Lacker, who doesn’t vote on the Federal Open Market Committee this year, said today in a Bloomberg Television interview with Peter Cook. “We’re not anywhere near decreasing the balance sheet yet.”