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

GREG IP:   Could you put some numbers on what -- on the meaning of exceptionally low federal funds rate? For example, would a 1 percent federal funds rate qualify as exceptionally low at the end of 2014?

 BERNANKE: Exceptionally low -- you know, one of the reasons that the language in the statement is sometimes a little vaguer than you would like, is because we're trying to get a consensus among 17 -- or at least 10 people -- and different members or participants in the FOMC might have somewhat different views of what exceptionally low means.

Personally, I think it means something close to where we are now.

Well, I'm a little bit more sympathetic to central bankers now than I was 10 years ago.

I think it's very important to understand that my comments, both in my comment in the -- published comment a decade ago, as well as in my speech in 2002 about deflation, my main point was that a determined central bank can always do something about deflation. After all, inflation is a monetary phenomenon, the central bank can always create money, and so on.

In response to a question from Yomiuri Shimbun about his earlier criticism of the BOJ.

While the bills that have been passed in the Senate Banking Committee and on the House floor express the desire to see losses imposed on failing firms' creditors, they provide the government with wide-ranging discretion to designate financial firms as "systemically important" and use public funds in their resolution. But the resulting ambiguity about rescue policy is likely to just perpetuate the forces that brought us "too big to fail" to begin with. Improved regulations will contain the risks that brought us the last crisis, but new risk-taking arrangements inevitably will arise that by-pass existing regulatory restraints. If authorities allow creditor losses at one failing firm, then creditors are likely to pull away from other similar firms, fearing that authorities will forgo supporting them as well. Authorities will feel compelled to resolve uncertainty about implicit safety net support by expanding implied commitments. Subsequent regulations will rein in the new arrangements, the danger of which will by then be fully appreciated. But this just sets the stage for another cycle of by-pass, crisis, rescue and regulation.

A discretionary safety net, with no set boundaries, only feeds this cycle by giving market participants reason to believe that new, complex arrangements ultimately will be protected. It requires an ever-growing reach of financial regulation, and undermines the market discipline that helps align financial risk-taking with broader societal interests.

A certain degree of ambiguity...I would hope, could help temper moral hazard concerns.

As reported by Reuters.

Financial stability demands policy stability. The official sector's policy preferences must be communicated clearly, credibly, and consistently and backed by concrete action.

The dramatic recent expansion in Federal Reserve lending raises the possibility that market participants view future access to Fed credit as having been substantially broadened. For evidence, market participants could point to the fact that entities formerly viewed as unlikely to have access to the discount window, such as the primary dealer subsidiaries of investment banks, have now been granted access...In my view, there is value in communicating policy intentions clearly. Deliberate imprecision — the so-called "constructive ambiguity" approach — leaves it to market participants to draw inferences for future policy from our past actions. Without an articulated statement of intention regarding lending policy, the time consistency problem is likely to be a difficult challenge because it will be hard to resist the future temptation to mitigate financial market stresses when they arise.

 Montagu Norman, the Governor of the Bank of England from 1921 to 1944, reputedly took as his personal motto, "Never explain, never excuse."  Norman's aphorism exemplified how he and many of his contemporaries viewed the making of monetary policy--as an arcane and esoteric art, best practiced out of public view.  Many central bankers of Norman's time (and, indeed, well into the postwar period) believed that a certain mystique attached to their activities and that allowing the public a glimpse of the inner workings would only usurp the prerogatives of insiders and reduce, if not grievously damage, the effectiveness of policy.

I always thought the high point of my career was once when I was testifying before the Congress in the Humphrey Hawkins saying and the headline {in one paper was} “Federal Reserve Tightens”. The headline in New York Times is “Federal Reserve Eases” and all I was trying to do was explain the complexity of the real world and people read into what you say, what they think in that particular case. I'm sure there were some monetarists who thought we -- I don't remember which side they were on -- who thought we were tightening or easing and some interest rate people who thought the opposite.

 So, it was what they read into the testimony, not what was said. But, I do think that actions speak louder then words and the words should as little as possible, confuse things.

Ambiguity has its uses but mostly in noncooperative games like poker. Monetary policy is a cooperative game. The whole point is to get financial markets on our side and for them to do some of our work for us. In an environment of low inflation and low interest rates, we need to seek ever greater clarity of communication to the markets and to the public.

When I joined the Bank of England in 1991, I was fortunate enough to be invited to dine with a group that included Paul Volcker.  At the end of the evening I asked Paul if he had a word of advice for a new central banker.  He replied--in one word--"mystique."  That single word encapsulated much of the tradition and wisdom of central banking at that time.

I remember very well a conversation I had with a very smart financial reporter shortly after I left the Fed. He said that he has learned over the years to ignore what the Fed says and watch what it does. I had to concede that he was right, but it troubled me a great deal that the two would be so different. In my view, they should be a matched pair.

If I say something which you understand fully in this regard, I probably made a mistake.

I'm trying to think of a way to answer that question by putting more words into fewer ideas than I usually do.

I don't see why obvious facts about the economy shouldn't be said in public. It's part of reducing the mystery of this business. I'm not a big believer in mystery.