The job numbers lag the economy. Don’t misunderstand me. I think having people back to work is extremely important, but you don’t want your short term – your impatience about monetary policy -- to cause you to create new problems two years from now or two and a half years from now that cause people to lose their jobs again. So it’s that balance that’s using the policy in a careful, measured way that I think matters. I don’t know if I am seeing anything different, but I think I am trying to maximize the ability to assure that the recovery continues and we’re sure that we don’t end up with a new bubble down the line or inflation two, or three, or four years from now. Remember, interest rates were very low in 2001, 2002 and the effects of that really came much later and that’s what we have to keep in mind for the future.

[W]e said we would keep short term rates low, exceptionally low for an extended period.  So until we change that, that’s where we are. Short term rates are going to stay low for a considerable period of time to come... among my very informal set of people that I asked that question they said that “extended” in their minds means at least six months... So what I want to stress is extended means at least six months. It could be a year from now… two years from now. It’s going depend on how the economy develops.

“Our ‘extended period’ language indicates that’s some substantial number of meetings,” Evans told reporters today after a speech in Coralville, Iowa. “I have said before that’s at least three or four meetings away.” The Federal Open Market Committee’s fourth meeting of 2010 is scheduled for June 22-23.

What does "extended period" mean? I don't want to put a date on it. To me, it means the policy rate will be kept low until recovery has shown momentum that is based on private business and consumer demand, job growth is established or at least imminent, and the downside risks appear to be safely navigable.

Low rates also interfere with the economy’s ability to allocate resources and distort longer-term saving and investment decisions. Artificially low rates discourage saving and subsidize borrowers at the expense of savers. Over the past decade, we channeled too many resources into residential construction and financial activities. During this period, real interest rates—nominal rates adjusted for inflation—remained at negative levels for approximately 40 percent of the time. The last time this occurred was during the 1970s, preceding a time of turbulence. Low interest rates contributed to excesses. It would be a serious mistake to attempt to grow our way out of the current crisis by sowing the seeds for the next crisis.

[B]ecause monetary policy typically acts with long lags on the economy and price level, the choice of when and how to exit will depend on forecasts. We will need to begin withdrawing extraordinary monetary stimulus well before the economy returns to high levels of resource utilization.

Turning to the outlook, the recession now appears to be over, but the economy is still weak and the unemployment rate is much too high. These circumstances underpin the FOMC’s commitment to keeping short term rates exceptionally low for an extended period.

“Policy rates are near zero in the U.S. and the rest of G-7 countries, something not seen in postwar economic history,” Bullard said, adding that interest rates may stay low for some time. “The FOMC did not begin policy rate increases until 2 ½ - 3 years after the end of each of the past two recessions.” Assuming that the most recent recession ended this past summer, and assuming that the FOMC would behave in the same way that it’s behaved in the past, this could mean the FOMC would not start increasing rates until early 2012. To be sure, Bullard said the FOMC will be heavily weighing concerns that stem from criticisms that the Fed kept interest rates too low for too long, contributing to the housing market bubble.

The Federal Open Market Committee continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. Of course, significant changes in economic conditions or the economic outlook would change the outlook for policy as well. We have a wide range of tools for removing monetary policy accommodation when the economic outlook requires us to do so, and we will calibrate the timing and pace of any future tightening to best foster maximum employment and price stability.

My outlook is for roughly 3 percent (GDP growth) over the next 18 months. That’s positive but modest after this downturn. Unemployment will be high. The combination of very large slack with stable inflation expectations leads me to an inflation outlook which is on the order of 1.5 percent core for the next few years, for the next two years at least.

With that environment, I’m underlying what my own guideline is for price stability. I’d say that’s 2 percent.  With that, policy is likely to continue to be appropriate for 2010 and most likely beyond.

Unless there are unusual developments, I think the policy is going to be highly accommodative, as it is now, for quite some period of time.

From comments to the press, as reported by Bloomberg News

Uncertainty over the outlook for inflation “is as high as it has ever been since 1980”, James Bullard, the president of the Federal Reserve Bank of St Louis, has told the Financial Times.

...

The St Louis Fed president said he would not favour tightening policy before recovery was well-established. “You are going to need to have jobs growth and you are going to need to have unemployment declining.”

But once the recovery looked solid and there were consistent good monthly job gains, the Fed could “remove some of the accommodation”.

Mr Bullard said tightening “does not have to involve as its first step moving the federal funds rate off zero”.

Instead, he favoured at that point selling back assets bought by the Fed in the course of its unconventional easing.

Most Fed officials fear that asset sales would rock the markets and push up long-term interest rates, including mortgage rates. However, Mr Bullard said: “It seems perfectly reasonable to me.” He argued that, with proper planning, asset sales did not need to be disruptive.

Living with a bloated balance sheet for too long would risk fuelling inflation, he warned. “I am concerned that if, over a longer term, you just leave this many reserves in the system, under any ­normal theory . . . that is raw material for the money supply.”

"Right now, monetary policy is extremely accommodative as I have said, and it is going to remain so as we struggle through this early stage" of recovery.

As reported by Bloomberg News.  This remark followed his more hawkish, headline-making comments from two days earlier. 

My colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road.

Bernanke used identical language in his op-ed piece in July 2009.

"We'll obviously be looking at the data as it comes in. Right now, I don't think it's time to raise interest rates."

As reported by Dow Jones Newswires.

But assuming stable inflation expectations, we're going to look for - I at least am going to look for growth to reestablish itself firmly enough that we're confident that real interest rates need to rise.  When that happens is open to - subject to a lot of uncertainty. It's impossible to predict in advance. We're going to look at a broad range of indicators, not look at any one data series in doing that. But that's generally the shape of things.

...

I don’t think that is a showstopper if the unemployment rate hasn’t starting falling yet {when we start to tighten}.   We have never done it. T here is a first time for everything.