With huge resource gaps, slow growth and low inflation, the economic circumstances warrant extremely strong accommodation.

I support using our balance sheet to provide additional accommodation. I think our action in June that continued our Maturity Extension Program was useful; but I would have preferred an even stronger step, such as the purchase of more mortgage-backed securities.

Finding a way to deliver more accommodation — whether it is monetary or fiscal — is particularly important now because delays in reducing unemployment are costly.

I believe the FOMC can do better at describing our thinking with respect to tolerance bands around our long-run inflation and unemployment goals. Clarification would increase both transparency and accountability. Importantly, it would help markets better anticipate Fed actions, creating one less source of risk for economic agents to manage.

We are falling short on both our employment and price stability mandates, and I expect that we will make only very limited progress toward these goals over the next year. Moreover, strains in global financial markets raise the prospect that economic growth and progress on employment will be even slower than I anticipate. In these circumstances, it is essential that we provide sufficient monetary accommodation to keep our economy moving towards our employment and price stability mandates.

If further action is called for, the most effective tool would be additional purchases of longer-maturity securities, including agency mortgage-backed securities. These purchases have proven effective in lowering borrowing costs and improving financial conditions.

At the Fed, we take our dual mandate with the utmost seriousness. This is a period when extraordinary vigilance is demanded. We stand ready to do what is necessary to attain our goals of maximum employment and price stability.

The current stance of monetary policy is ultra-easy, and remains appropriately calibrated given the macroeconomic situation in the U.S.

The ultra-easy monetary policy has been appropriate so far, but could reignite a 1970s-type experience globally if pursued too aggressively. The 1970s era included 4 recessions in 13 years, double-digit inflation, and double-digit unemployment. The lesson was clear: “Do not let the inflation genie out of the bottle.”

If anything, the Committee may be trying to do too much with monetary policy, risking monetary instability for the U.S. and the global economy.

Monetary policy is a blunt instrument which affects the decision making of everyone in the economy. It may be better to focus on labor market policies to directly address unemployment instead of taking further risks with monetary policy.

The {Fed's} current communication strategy operates with only a few variables, while the economy is described by many variables. The FOMC could instead publish a quarterly document akin to the Bank of England’s “Inflation Report.” A report of this type could potentially lay down a benchmark “Fed view” on the key issues facing the U.S. economy. Release of the report could be coordinated with the quarterly press briefings conducted by Chairman Bernanke.

Atlanta Fed President Dennis Lockhart, in an interview with Dow Jones Newswires, said that when it comes to additional Fed action, "I simply do not rule it out. It is an option that is open depending on how things evolve."

"I am more leaning toward the view further action would be a response to deteriorating conditions and a deteriorating outlook that could be conceivably caused by financial instability that might have an external source,"

I’ve been in favor of pretty much any accommodative policy I’ve heard about. Extending the Twist would be useful. More asset purchases would be useful. More mortgage-backed securities purchases would be good.

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.”

The indicators of economic strength so far in 2012 have been underwhelming. I expect the recovery process to be slow and drawn out. I think the most reasonable expectation is moderate growth, a slow and possibly halting decline of unemployment, with inflation staying close to 2 percent.

---

Lockhart told reporters after his speech he was going into next week’s FOMC meeting with an “open mind” to review the Fed’s “very thorough” staff analysis and other participants’ views, though he was not ready to back additional action today.

---

"I don't think any of the options should be taken off the table under the current circumstances. But I'm not convinced at this moment that the circumstances quite yet call for additional action," Lockhart told reporters.

“I don’t think any of the options should be taken off the table under the current circumstances,” Lockhart told reporters after the speech. “But I am not convinced at this moment that the circumstances quite yet call for additional action.”

Lockhart, when asked about remaining policy tools that could yet boost the slow and shaky U.S. economic recovery, said: "I am simply not of the view that we have exhausted all of our options.

"I think there are monetary policy tools and actions that are still available if the conditions require them."

So that's the essential decision and the central question that we have who look at. Will there be enough growth going forward to make material progress on the unemployment rate?

So, my colleagues and I are still working on our own assessments, staff are working on their updated forecasts, we'll have a new round of economic projections by all the participants in the FOMC between now and the -- and the meeting. And that's I think a key question. If we decide that further action is required, then of course we also have to decide what action is appropriate or what communication is appropriate. We have a range of options. Obviously the traditional reduction in the short-term interest rate is no longer feasible, but we have options that we can consider. In looking at those we have to make some difficult assessments, both about how effective they would be and whether there are costs and risks associated with those steps that would outweigh the benefits they might achieve.

So we have -- obviously I can't directly answer your question, it's too soon for me to do that. And we have a committee meeting which will try to evaluate these questions but we both -- I think the key question we'll be facing will be, will economic growth be sufficient to achieve continued progress in the labor market. And our mandate for maximum employment says that we should be looking to try to achieve continued improvement.

"[Low inflation and the weak U.S. job market] gives us some flexibility to think about additional monetary-policy accommodation,” Rosengren said today at an Institute of International Finance conference in Copenhagen.

Rosengren said he expects U.S. gross domestic product to grow 2.3 percent this year. Inflation will probably be lower than the roughly 2 percent target the Fed aims to preserve, he said, citing forecasts for personal consumption expenditure measures.

"...... in my view, an extended period of highly accommodative policy is necessary to combat the persistent headwinds to recovery."

If the outlook for growth worsens to the point that we no longer expect to make sustained progress on bringing the unemployment rate down to levels consistent with our dual mandate, or if the medium-term outlook for inflation falls significantly below our 2 percent target, then additional monetary accommodation would be warranted. In such circumstances, an effective tool would be further purchases of longer-maturity securities, potentially including agency mortgage-backed securities. Past purchases have succeeded in lowering borrowing costs and improving financial conditions, thereby supporting economic recovery.

Federal Reserve Bank of Atlanta President Dennis Lockhart said extending Operation Twist, the program to lengthen maturities of debt on the central bank’s balance sheet, is an “option on the table.”

“There is capacity to do more,” Lockhart said today in response to audience questions after a speech in Fort Lauderdale, Florida. “It is certainly an option. I’m not going to speculate on what the FOMC will do,” he said, referring to the Federal Open Market Committee.

“One possible FOMC strategy is to simply pocket the lower yields and continue to wait-and-see on the U.S. economic outlook,” Bullard said. While Europe’s turmoil is driving global problems, “a change in U.S. monetary policy at this juncture will not alter the situation in Europe.”