The Fed vice chairman said the central bank’s low-rate policies are intended “to promote a return to prudent risk-taking” in credit markets. “Obviously, risk-taking can go too far,” Yellen said today at an International Monetary Fund panel discussion on monetary policy in Washington.

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“I don’t see pervasive evidence of rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would threaten financial stability,” Yellen said. “But there are signs that some parties are reaching for yield, and the Federal Reserve continues to carefully monitor this situation.”

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The Fed vice chairman said in her remarks that she was “persuaded” by Columbia University economist Michael Woodford’s theories that keeping interest rates “lower for longer” are suitable for times of high unemployment and weak demand. The FOMC’s decision to tie the benchmark interest rate to economic indicators aligns with the “lower for longer” approach, she said.

As reported by Bloomberg Businessweek

By lowering private-sector expectations of the future path of short-term rates, this guidance can reduce longer-term interest rates and also raise asset prices, in turn, stimulating aggregate demand. Absent such forward guidance, the public might expect the federal funds rate to follow a path suggested by past FOMC behavior in "normal times"--for example, the behavior captured by John Taylor's famous Taylor rule. I am persuaded, however, by the arguments laid out by our panelist Michael Woodford and others suggesting that the policy rate should, under present conditions, be held "lower for longer" than conventional policy rules imply.

The Federal Open Market Committee said in March it will keep buying $85 billion in bonds each month until the labor market substantially improves. Evans, who votes on the FOMC this year, told reporters after the speech that he expects the Fed to keep the asset-purchase plan in place until at least late this year.

“I would not be surprised if we end up doing this until late 2013, ultimately ending the program in 2014 at some point,” he said.

At some point, I expect that I will see sufficient evidence of improved economic momentum to lead 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. As Chairman Bernanke said in his press conference following the March FOMC meeting "when we see that 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."

I think ideally it would actually come from the fiscal side. My own forecast is we’ll get to roughly 7.25 percent unemployment by the end of the year. I would continue our program and if we get to 7.25 and we’re starting to see payroll growth that is north of 200,000, and it looks like we’re getting a real self-sustaining recovery then I think you can make an argument [that it’s time to curtail asset purchases].

I think we need to be careful about what kind of side effects we’re having.

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.

“There’s still work to do,” Evans said today in a speech in Richmond, Virginia. “The committee currently thinks that at the end of 2014 we’re still going to be below the inflation objective and unemployment is still going to be above 5.5 percent” he said, referring to the central bank’s dual mandate for stable prices and maximum employment.

“In about two years, we are still going to be missing.”

Fed policy is very easy, and it’s going to stay easy for a long time. That’s my main message this morning.

At our January FOMC meeting, we announced we will continue buying longer-term Treasury and mortgage-backed securities at a pace of $85 billion per month.23 Critically, we indicated we will continue these purchases until the outlook for the job market improves substantially, in the context of stable prices. I anticipate that purchases of mortgage-backed securities and longer-term Treasury securities will be needed well into the second half of this year.

The Fed has stated that it will continue its bond buying until it sees substantial improvement in labor markets, but it has not defined what that improvement would look like. Mr. Williams noted there's some "purposeful ambiguity" around the terminology, but added he'd like to see sustained monthly job gains over 200,000 a month, joined with a rise in the labor force participation rate.

As reported by Dow Jones News

“We should think about tapering or adjusting the program,” Bullard said yesterday in an interview in Washington. “If you get some good data for a couple of months, maybe you’d say, ‘Okay, we go back to $75 billion per month instead of $85 billion or something like that.’”

“You don’t want that cold turkey aspect to the program,” he said. “If we got some good signs through the spring or the summer, then I think we could throttle back just a little bit without saying you are going to end the program on any particular day.”

"We need some substantial improvement" in the jobless rate to consider a major shift in the Fed's purchases of Treasury and mortgage debt, Federal Reserve Bank of Boston President Eric Rosengren said in an interview with Dow Jones Newswires.

Compared to the current 7.8% unemployment rate, the official said once a 7 1/4% rate is achieved, central bankers would need to have a "full discussion" about the utility of pressing forward with bond buying.

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Mr. Rosengren also said in the interview he doesn't believe the Fed's very aggressive policy is creating new financial market imbalances.

"I am not seeing strong evidence there is collateral damage" from Fed actions, and "I'm not seeing anything more generally that would pose a macroeconomic concern at this time." For those who believe historic low yields in the bond market represent a bubble, Mr. Rosengren said "the lower interest rates are exactly what we intended on doing," adding "these rates won't stay in place" forever.

The Fed may need to slow or halt bond buying this year as the economy makes “modest progress,” Plosser said in a Bloomberg Television interview.

“Given where we are, I think I would not be surprised if we face the choice of having to rein in the purchases sometime during this year."

My own forecast, conditional on the FOMC’s current monetary policy stance, is that inflation will run below the Fed’s target of 2 percent over the next two years and the unemployment rate will remain elevated. This forecast suggests that, if anything, monetary policy is currently too tight, not too easy.

Bullard told reporters that “it’s a very aggressive policy and it is making me a little bit nervous that we’re over- committing to easy policy.”