There is a very high bar to resorting to the policy of further quantitative easing

Our policy is appropriate in this economic environment; it is supporting a stronger recovery while ensuring that inflation remains consistent with our mandate.

“The state of the economy is such that it would be a good idea to do asset purchases,” Evans said today during an interview on CNBC. He said the Fed could buy mortgage-backed securities.

Additional monetary policy accommodation -- either in the form of additional asset purchases or further forward guidance on our future policy intentions -- may be needed to bring us closer to our mandated objectives of maximum employment and price stability.

“We already have a very easy policy in place,” he said. “That’s something that is often missed in this discussion. We are appropriately calibrated for the situation we are in.”

“The thing that I worry about is waking up and everyone being complacent that” the economy is going to “muddle through,” Evans said. “We do need leadership” and “I have been in a very small manner trying to advance this by saying I think we should be willing to accept slightly above target inflation,” he said.

“I’m more comfortable now in terms of not -- this is me personally speaking -- not anticipating greater accommodation,” he said yesterday in an interview at Bloomberg’s headquarters in New York. “The direction we’re moving in is positive.”

Given the very weak labor market conditions and the low expected inflation rate, the Federal Reserve should in my view continue to take action to aggressively try to reduce the stubbornly high U.S. unemployment rate.

"Right now, we’re at an appropriate place for policy,” the regional bank chief told reporters today after a panel discussion in Santa Clara, California. “We just took two pretty strong policy actions."

QUESTION: Mr. Chairman, this is the third straight set of economic projections you have released that have downgraded forecasts for growth and for employment. I wonder, is there some systematic error or some blind spot that's -- that's behind these kind of overly optimistic forecasts? What are you doing internally to understand what you got wrong the last few projections?

BERNANKE: Well, it's a perfectly fair question. And, you know, we spend a lot of time reviewing those errors. The staff in particular presents us with information on forecast errors and on revisions, et cetera. And so we look at that very carefully.

I think it's clear that in retrospect that the severity of the financial crisis and a number of other problems, including the dysfunction in the housing market, have been more severe and more persistent than we initially believed. And that together with a number of other phenomena, like deleveraging by the household sector and so on, has slowed the pace of recovery.

So, yes, we have again downgraded the medium-term forecast. Evidently, the forces, you know, the drags on the recovery were stronger than we thought.

I would add, however, though, that although I think it's very important to look at the fundamental factors affecting the recovery, there's been some elements of bad luck. For example, this year the combination of the natural disaster in Japan, which had global impacts in terms of growth, oil price increases, the European debt crisis, which was not anticipated to be as severe and create as much volatility as it has in financial markets, all those things have been negatives for growth. And they do explain at least part of the  downward revision.

Let me be very clear that the Federal Reserve's monetary policy is highly accommodative now. We've brought rates close to zero. We have done $2 trillion worth of asset purchases. We have made commitments about rates. We've extended the maturity of our portfolio. So we've taken a lot of steps, including steps at the last two meetings. So we are being very aggressive in providing monetary accommodation.

I was asked before about conditions for further accommodation. Well, we are prepared to do that. And we will continue to observe how the economy evolves.  You know, what we have is a projection. There's a lot of uncertainty there. And so it'd be very important to see, you know, what actually happens in terms of financial market conditions and economic growth.

But we are prepared to take further action, and we've already taken quite a bit of action, but we are prepared to do more, and we have the tools to do more  if that's appropriate.

Again, while I do not shirk the responsibility of the Fed having to do what it can to meet its mandate, obviously a broad range of policies can affect growth and employment. And I hope that there will be a range of actions that will complement and supplement the Federal Reserve's efforts.

“I don’t think the Fed has run out of bullets,” though there are “costs” associated with its options, Dudley said. The Fed could extend its commitment to keep interest rates low or could embark on another round of so-called quantitative easing, he said.

"We have already set that precedent," he said. "We are reallocated within that existing portfolio, which is an expanded balance sheet way above the $800 billion which is the norm for our central bank. And I would be very wary of more accomodation. There is plenty of liquidity."

 Like many private sector forecasters, the FOMC has overestimated the strength of the recovery over the past two years. Some have suggested that the unexpected slowness of the recovery is a justification for the FOMC’s increasing the level of monetary accommodation over the past couple of months. But I disagree with this argument. I’ve just described why the FOMC should respond to improvements in economic conditions and outlook with a reduction in the level of monetary accommodation. Logically, if the economy recovers much more slowly than expected, then the FOMC should respond by reducing the level of monetary accommodation much more slowly than expected. The FOMC should only increase accommodation if the economy’s performance and outlook, relative to the dual mandate, actually worsens over time.

“It is reasonable to wait and see how the Twist policy affects the economy,” Bullard said, referring to September’s so-called Operation Twist measure. “Given that the tone of the data has been better, you want to get into next year” before you consider more action.