“The Bank of England has been very cautious and careful and it has been much closer to the views of the European Central Bank,” Lawson, 76, who was finance minister from 1983 to 1989 under former Prime Minister Margaret Thatcher, said in a telephone interview. “It has not gone conspicuously the way of the Fed, where I suspect that Mr. Bernanke's now regretting it.”

From a Bloomberg telephone interview.

An efficient monetary policy {following an oil shock} should attempt to facilitate the needed economic adjustments so as to minimize distortions to economic efficiency on the path to achieving, over time, its dual objectives of price stability and maximum employment.⁹

In particular, an appropriate monetary policy following a jump in the price of oil will allow, on a temporary basis, both some increase in unemployment and some increase in price inflation.  By pursuing actions that balance the deleterious effects of oil prices on both employment and inflation over the near term, policymakers are, in essence, attempting to find their preferred point on the activity/inflation variance-tradeoff curve introduced by John Taylor 30 years ago.  Such policy actions promote the efficient adjustment of relative prices: Since real wages need to fall and both prices and wages adjust slowly, the efficient adjustment of relative prices will tend to include a bit of additional price inflation and a bit of additional unemployment for a time, leading to increases in real wages that are temporarily below the trend established by productivity gains.

Our decisive policy actions were premised on the view that a more gradual reduction in short-term rates could well have failed to contain the financial and economic problems confronting us.  For now, policy seems well positioned to promote moderate growth and price stability over time.  We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate. 

If inflationary developments and, more important, inflation expectations continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic' [economy].

From Q&A as reported by Bloomberg News

Inflation expectations have remained reasonably well-anchored so far, which is encouraging -- but the key to maintaining low inflation and inflation expectations is likely to be the timeliness and the magnitude of decisions we make to reverse course.

We are highly sensitive to this issue and I am confident that we will conduct policy in an appropriate and timely manner.

As reported by Market News International and Reuters.

Seeing weak data doesn't automatically point to interest rate reduction. ... I think monetary policy is reasonably positioned now.

From press Q&A as reported by Market News International and Bloomberg News, saying it would take a "a significant change" in the forecast to change her view.

Consistent with Munger's admonition, the Fed saw it necessary to expand our toolkit beyond the proverbial hammer of the policy rate in the last nine months. And as I discussed in remarks last month, the Fed's nontraditional policy response included the use of innovative liquidity tools to counter the market turmoil and improve the functioning of financial and credit markets.⁴

In my remarks today, I would like to discuss the use of the hammer--the setting of the federal funds rate--particularly in extraordinary times. Of course, determining the proper level of the federal funds rate is rarely simple, given typical imprecision on key economic variables and relationships. It is far more challenging still when the financial architecture is in the early stages of redesign, the economy is adjusting to the aftermath of a credit bubble (witnessed most acutely in the housing markets), and inflation risks are evident.

The Federal Reserve has employed the hammer with considerable force in the last nine months, lowering the federal funds rate by 3-1/4 percentage points, with wide-ranging implications for the economy. Of substantial import, we have filled the toolkit with other implements to provide liquidity and improve the provisioning of credit during the turmoil. But now, policymakers may be well served encouraging a new financial architecture to emerge, aided, in part, by the actions we have taken. Even if the economy were to weaken somewhat further, we should be inclined to resist expected, reflexive calls to trot out the hammer again.

Policy actions should reinforce the notion with stakeholders that further hammering needs to be done, but it needs to be accomplished by the financial institutions themselves in retooling their businesses and rebuilding the credit channel to help ensure a stronger, more durable economy.

As with any forecast, mine is subject to a number of uncertainties. One is the extent of the housing correction ahead of us. If the retrenchment in house prices becomes deeper than anticipated, its effect on lenders and financial markets could further damp overall economic activity. We are in uncharted waters when the financial system becomes so disrupted, though we should consider ourselves fortunate that we have very few similar historical episodes on which to base our judgments. In such circumstances, uncertainty about how credit conditions will evolve and how businesses and households will react to changing terms and conditions means that we can have even less confidence than usual in our economic forecasts.

I consider the current level of monetary accommodation to be appropriate. That, together with the fiscal package, should be sufficient to promote a gradual step up to moderate economic growth later this year. Likewise, I would expect that inflation will moderate in coming quarters, as more slack in labor and product markets emerges and as commodity prices level off.

We've done what we need to do, given what I know about the economy, to generate a recovery.

From Q&A as reported by Bloomberg News

Q:  How do you prevent the perception that the Fed, after doing whatever it takes in cutting rates, would be measured and gradual in raising them?

It’s not impossible. … We have to be prepared to put some weight on forecasts. You can’t wait until you’re 100% confident that all the problems are behind us, the economy’s now growing robustly and it’s time to change policy. … Maybe we’ll be dealt that hand where that actually plays out, but I don’t know that we will be. So you have to put some weight on forecasts. You’ve got to be prepared to say, yes there are still some problems, the current environment isn’t all that we might like it to be, but we really think the outlook is pretty good and it’s time to act. The other part of it is to remind ourselves how flexible and resilient the economy is.

Clearly you can't get interest rates below zero ... but we actually have interest rates now at 2-1/4 percent and clearly there is some room to lower them if it's needed.

... Furthermore, we are continually looking at steps to make the markets function better and I think we've been quite creative in terms of the steps we've taken so far, but in fact we will continue to look at the steps that we can take to in fact make the functioning of the financial markets get back to a more normal situation

From Q&A as reported by Reuters

Perhaps the decline in the probability that the markets have put on the larger move reflects some sense at this point that maybe financial conditions are a little bit more stable than they were at the time of our last meeting. 

I don't regard financial markets as operating in a normal way at all, but it's nevertheless helpful to see some signs that some of the
liquidity measures we put into the marketplace are working. For whatever reason, we've got a somewhat better sense of financial stability.

From Q&A as reported by Market News International

There's no textbook answer to what monetary policy should be doing at this time.

From Q&A as reported by Market News International and Bloomberg News

With regard to monetary policy, the FOMC has taken significant steps since September, cutting the federal funds rate by 3 full percentage points to an accommodative level of 2¼ percent. I consider such accommodation an appropriate response to the contractionary effects of the ongoing financial shock and the housing downturn, and I anticipate that the resulting stimulus, combined with that of the fiscal package, will foster a moderate pickup in growth later this year. At the same time, consumer inflation seems likely to decline gradually to somewhat below 2 percent over the next couple of years, a level that is consistent with price stability.

However, economic prospects remain unusually uncertain, and the downside risks to growth are significant. Going forward, the Committee must carefully monitor and assess the effects of ongoing financial and economic developments on the outlook for output and inflation, and be prepared to act in a timely manner to promote the economy’s return to sustainable paths for output and employment.