Based on the stated views of the Committee regarding the flexibility in pace of purchases, I believe that labor market conditions warrant scaling back the pace of purchases as soon as our next (June 18-19) meeting. Moreover, unless we see a significant reversal in current trends that jeopardizes my forecast of near 7 percent unemployment rate by the end of this year, then I anticipate that we could end the program before year-end.

The so-called quantitative easing that has swollen the Fed balance sheet to $3.32 trillion may lead to “complications” as the central bank begins to exit the policy, George said. Risks include a jump in longer-term inflation expectations and a “painful adjustment” for investors when the benchmark interest rate is eventually raised, she said.

“Continuing this current policy outside of the crisis, outside of a recession, poses risks to us in the long term,” George said.

"I wouldn't have gone down this asset-purchase path. I'm in the camp that we should taper and stop right now," Lacker said in a "Squawk Box" interview from the 2013 Credit Markets Symposium in Charlotte, N.C. "You have to prepare markets, if it was up to me, if you made me dictator, that's what I would do."

In March 2011, I shared some principles I thought should guide the Fed's eventual exit from this period of extraordinary monetary policy and its attempts to normalize policy. I said at the time that an effective exit strategy had to begin by deciding on our destination — what monetary policy operating framework we will use after exit — and then articulating a systematic approach to getting there. I was gratified that in June of the same year, the Federal Open Market Committee (FOMC) adopted a similar set of exit principles.

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In addition to stopping asset purchases, the Fed should take two other steps as precursors to exit. First, we should seek to normalize the spread between the discount, or primary credit, rate, the rate at which banks borrow from the central bank, and the target federal funds rate... More than three years later, the crisis has passed and the other temporary lending programs the Fed initiated during the height of the crisis have disappeared. Thus, it may be a reasonable time to restore the spread to a more normal level.

Second, another step that might be taken before exit begins is to rethink our reinvestment strategy. There are no longer any short-term Treasuries in the Fed's portfolio. Rather than reinvesting maturing assets and prepaid assets into longer-term assets, it might be prudent to begin reinvesting in shorter-term assets. That would provide more flexibility in managing our balance sheet as we move forward.

If we do not stop purchases soon, one part of the exit strategy that might need to be reconsidered is asset sales… Determining the optimal pace of normalization from a very large and long-duration balance sheet is a complicated task that will depend on the speed with which interest rates rise and the size of the balance sheet when normalization commences. One factor to consider is the fiscal implications... Over time as the economy improves, interest rates will rise. Since the Fed's portfolio holds predominantly longer-term securities, interest received will not rise appreciably, but the interest paid on reserves will have to go up. Roughly speaking, if reserves total $2 trillion, remittances to the U.S. Treasury will fall by $20 billion for each 100-basis-point rise in the IOR…

In addition, should the Fed choose to sell long-term assets in a rising interest rate environment, it could experience capital losses. This would further reduce remittances to the Treasury. The more aggressively the Fed sells off its assets, the higher the losses and the more likely remittances to the Treasury could turn negative for a number of years. Although negative remittances would not impair the Fed's ability to implement monetary policy, they may impose significant political risk for the institution.

In my view, a case can be made that we have seen sufficient improvement to begin tapering our asset purchase program with the objective of bringing it to an end before year-end.

Bullard, one of the first officials to urge slowing the pace of bond buying in 2013 if economic conditions allowed, said today policy makers probably will “slowly ratchet down the pace of purchases” as the economy continues to improve.

“That’s a great policy, serves us very well,” Bullard said today. “And the notion that when a little bit weaker data comes in or a little bit stronger data comes in, well the Fed policy is going to adjust in response to that -- so I think that’s been a very good development.”

I’m looking for convincing evidence of sustained, ongoing improvement in the labor market and economy. The latest economic news has been encouraging. But it will take more solid evidence to convince me that it’s time to trim our asset purchases. An important rule in both forecasting and policymaking is not to overreact to what may turn out to be just a blip in the data. But, assuming my economic forecast holds true, I expect we will meet the test for substantial improvement in the outlook for the labor market by this summer. If that happens, we could start tapering our purchases then. If all goes as hoped, we could end the purchase program sometime late this year.

It’s important to note that tapering our purchases and even ending the purchase program doesn’t mean that we are removing all the monetary stimulus that comes from our longer-term securities holdings. Instead, even as we cut back our purchases, we’re still adding monetary accommodation and exerting greater downward pressure on interest rates. Economic theory and real-world evidence indicate that it’s not the pace at which we buy securities that matters for influencing financial conditions. Rather, it’s the size and composition of the assets we hold on our balance sheet. So, even when we stop adding to our portfolio, it doesn’t mean we’re tightening policy.

There are encouraging developments in the economy, to be sure, but the evidence of sustainable momentum that will deliver “substantial improvement in the outlook for the labor market” is not yet conclusive. I favor a “wait and watch” mode for the time being. Several more months of positive data—especially in a range of employment data—would give me confidence that the economy has real traction and is unlikely to backslide.
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The key word in the phrase “substantial improvement in the outlook for the labor market” is outlook. For my part, a critical consideration in judging how much longer asset purchases should continue will be confidence in the positive outlook. Confidence that is solidly grounded in improving economic data, accumulated over a sufficient span of time, will help me conclude that the work of the large-scale asset purchase program, as a temporary supplement to conventional interest-rate policy, is complete.

The decision to curtail asset purchases ought to be forward-looking, and in my judgment, that point could come later this year or early next year without harm to the momentum of the economy.

Federal Reserve Bank of Boston President Eric Rosengren said today the central bank should be “drawing down” its bond buying of $85 billion a month as the economy improves and at some point it should stop the purchases.

“On the other hand, if the economy does much worse, we have the option to be buying more of them,” he said in an audience question-and-answer session in Manchester, New Hampshire.

As reported by Bloomberg News

Business leaders in my District report being pleasantly surprised by orders and activity levels so far this year.

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The economy is still far from full employment of its resources, and monetary policy still needs to remain accommodative. Undoubtedly, more unforeseen developments, and risks, lie ahead. However, I would like to conclude with an emphasis on the positive. The economy appears to be on a steady, albeit moderate, growth path, and the potential risks associated with our large-scale asset purchases appear manageable at the moment. I would regard a slowing in the pace of asset purchases to be a welcome direction for monetary policy if it resulted from a significant improvement in the outlook for labor market conditions. That outcome could emerge before long, but it still remains to be seen.

“I’m personally in favor of tapering back our mortgage- backed security purchases,” Fisher told reporters today at a conference in Abu Dhabi. “I think we’ve assisted the recovery of the housing market. We have a pretty robust housing situation right now. We don’t want to slip backwards."

As reported by Bloomberg News

If quantitative thresholds are good for interest rate guidance, why not also have such thresholds for the asset purchase program? There are two reasons. There is somewhat more uncertainty about the efficacy and costs associated with asset purchases than rate guidance and we are likely to learn more about the efficacy and costs as the program unfolds.

So what is this likely to mean in practice? In my view, we should calibrate the total amount of purchases to that needed to deliver a substantial improvement in labor market conditions, by allowing the flow rate of purchases to respond to material changes in the labor market outlook. This makes sense because the benefits of additional accommodation will gradually diminish as we get closer to our full employment and price stability objectives and become more confident that we will reach them in a timely manner. At some point, I expect that I will see sufficient evidence of economic momentum to cause me to favor gradually dialing back the pace of asset purchases.

Of course, any subsequent bad news could lead me to favor dialing them back up again.

The lack of thresholds [for the Fed’s open-ended asset purchases] comes from the complexity of the problem. On the one hand, we have benefits which are associated with improvements in the economy, but there are also costs associated with unconventional policy, such as the potential effects on financial stability, which are hard to quantify and which people have different views about.

So to this point, we've not been able to give quantitative thresholds for the asset purchases in the same way that we have for the federal funds rate target. We're going to continue to try to provide information as we go forward.

In particular, as I mentioned today, as we make progress towards our objective, we may adjust the flow rate of purchases month to month to appropriately calibrate the amount of accommodation we're providing, given the outlook for the labor market.

In terms of further color, again, given the complexity of the issue, we've not given quantitative analysis or quantitative thresholds. I would say that we'll be looking for sustained improvement in a range of key labor market indicators, including, obviously, payrolls, unemployment rate, but also others, like the hiring rate, claims for unemployment insurance, quit rates, wage rates, and so on, be looking for sustained improvement across a range of indicators and in a way that's taking place throughout the economy.

And since we're looking at the outlook, we're looking at the prospects rather than the current state of the labor market, we'll also be looking at things like growth to try to understand whether there's sufficient momentum in the economy to provide demand for labor going forwards. So that will allow to us look through, perhaps, some temporary fluctuations associated with short-term shocks or problems.

We think it makes more sense to have our policy variable, which is the rate of flow of purchases respond in a more continuous or sensitive way to changes in the outlook. So as we make progress towards our ultimate objective of substantial improvement, we may adjust the rate of flow of purchases accordingly.

Now, we won't do that every meeting, won't do that frequently. But when we see that the conditions -- or the situation has changed in a meaningful way, then we may well adjust the pace of purchases in order to keep the level of accommodation consistent with the outlook and, secondly, to help provide the markets with some sense of progress – how much progress is being made so that it can make better judgments.

… Well, again, we've not been able to come to an agreement about what guidance we should give. And part of the concern is, is that we go forward, we -- you know, we'll have to factor in the efficacy, which is another issue. I mean, there's a wide range of views about how effective asset purchases are in terms of moving the economy.

So as we move forward in time, we'll be learning about how effective the policy is and what costs and risks there may be associated with it. And as we do that, perhaps we'll be able to give more explicit guidance. And I -- I agree with you 100 percent that that would be more effective, if we could give a numerical guidance.

[I]t is entirely possible that it might be appropriate at some point to adjust the pace of MBS purchases in response to developments in primary or secondary mortgage markets. Within the context of the Committee's judgment about the appropriate overall level of monetary accommodation, such an adjustment could result in an increase or decrease in the pace of total asset purchases, or it could lead to a change in the composition of purchases.