By stating that the new language is consistent with prior guidance, the statement makes no change in forward guidance despite the significant economic progress. I do not view this as appropriately data-dependent policy.

The time-dependent language also risks limiting the Committee's flexibility to act in a more timely manner in response to an improving economy. I am afraid the Committee is not leaving itself the flexibility to respond to the data if we continue to see an improving economy.

Many metrics for assessing the appropriate stance of monetary policy suggest that the federal funds rate should be lifting off from zero soon and should be significantly above zero in June 2015. The Committee's forward guidance strongly suggests that such a policy path is highly unlikely. I believe that waiting too long to initiate a gradual increase in rates could result in the need for more aggressive policy in the future, which could lead to unnecessary volatility and instability.

The failure to adjust forward guidance to reflect the improvement in the outlook for the economy and its continued reliance on the passage of time as a governing factor in the decision to increase rates were the underlying factors warranting my dissent.

Monetary policy should be data dependent, not date dependent.

In addition, given the uncertainties surrounding our forecasts of the pace of labor market improvement and the degree of remaining slack, monetary policy has to be determined largely by incoming data and the signals that data provide about the health of labor markets. If the economy disappoints we should be in no rush to raise short-term rates, but if the economy improves more quickly than anticipated we should raise short term rates earlier. Thus, we should be moving away from providing date-based forward guidance, and instead focus on what incoming data tell us about reaching full employment and 2 percent inflation within a reasonable time period.

...

In fact, I actually hold the view that as we approach levels of unemployment that many consider “full employment,” the Fed should no longer issue guidance on the approximate timing of any monetary policy changes.

I do not intend this to reduce transparency in monetary policymaking. Rather, I simply want to acknowledge that any reference to calendar dates has the potential to be inaccurate. The date of “liftoff” from near-zero short-term rates is highly dependent on how the economy actually evolves – in other words, is going to be tied to the current and expected path of inflation and employment. We are getting close enough to targets that, given the uncertainty around forecasts of these variables, incoming data that cause Federal Reserve policymakers to significantly change our outlook for the economy will shift any expected lift-off date forward or backward in time. So, again, reference to calendar dates as we approach targets has the potential to be inaccurate.

Market expectations are that the Federal Reserve will start to raise short-term interest rates around the middle of 2015... That sounds to me like a reasonable forecast, but forecasts often go astray, so I wouldnt put too much weight on that particular set of forecasts.

The world is highly uncertain. In the current environment its still very, very appropriate to continue to follow very accommodative monetary policy.

The guidance that I want to give you is that there is no mechanical formula whatsoever for what a “considerable time” means. The answer to what it means is, “it depends”. It depends on how the economy progresses.

Federal Reserve Bank of San Francisco President John Williams said the pace at which the Fed is reducing its asset purchases is “pretty much baked in the cake” and that central the bank shouldn’t start raising interest rates until the second half of next year.

“We’re closing in on the final stages of tapering,” Williams told reporters today following a panel discussion in Dallas. “I don’t see a lot of benefit to modifying” the pace unless there’s a “dramatic change” in the economic outlook, he said.

The drop in unemployment “reinforces the need to add some qualitative interpretation to the threshold or to find a different way to communicate,” he said. “It presents some challenges in communication” for the central bank.

Payrolls in December increased at the slowest pace in almost three years, indicating a pause in the recent labor market strength that may have reflected the effects of bad weather. The drop probably won’t keep policy makers from discussing another $10 billion cut in asset purchases, Lacker told reporters today after a speech in Raleigh, North Carolina.

“As a general principle, it’s wise not to overreact to one month’s employment report,” Lacker said. “Employment has been growing along a pretty steady trend this year. It takes a lot more than one labor-market report to be convincing that the trend has shifted, and in my experience one employment report rarely has an effect by itself on monetary policy.”

While the Fed has tied further withdrawal of stimulus to continued economic progress, Rosengren detailed what he would need to see to either halt the tapering or ramp it up.

"To halt it, certainly if we stop seeing progress in the labor markets ... and we were to start seeing the unemployment rate go up—that would be certainly a source of concern and a reason to stop it," he said.

On the other hand, "it would take some fairly strong, unexpected growth, and inflation much more quickly than I'm expecting back towards 2 percent, to make me want to remove accommodation more quickly," Rosengren said. "I don't expect that to happen," he added.

I do not mean to imply that the communications and signaling issues of the last few months have not been difficult, for many. Without question, there are difficulties inherent in communicating a data-contingent policy – but a data-contingent policy is far preferable to the alternatives. The Federal Reserve will continue to refine its policy-related communications, but I would just point out that predictive certainty will never be the case when policy is rooted in actual incoming data, which may or may not follow forecasts.

While the decision not to pull back on the Federal Reserve‘s easy-money policies last week was a “close call,” a veteran central banker on Monday suggested it will be hard for the Fed to find cause to trim its bond buying program at its upcoming October meeting.

In an interview with the Wall Street Journal, Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy is currently beset with uncertainty resulting from economic data that’s proved “ambiguous.” At the same time, a showdown between the White House and the Congress over the budget and borrowing powers has the potential to cause economic trouble if it’s resolved as poorly as past episodes, the official said.

“In the short time between now and the October meeting, I don’t think there will be an accumulation of enough evidence to dramatically change the picture” about where the economy now stands, Mr. Lockhart said.

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Mr. Lockhart said the October FOMC “is a live meeting” and if the Fed wants to act, it can and will. Still, he added, “I don’t have expectations that the fog will clear dramatically between now and October.”

"Should there a be point at which these type of costs exceed the benefits that the low-interest rate environment is providing generally to the economy, then I would argue it needs to be reevaluated,” Ms. Raskin said. The future course of Fed policymakers’ decision making is “highly data dependent,” and will vary based on how the economy performs.

As reported by The Wall Street Journal.

In August 2011, the Committee began using dates to signal when the policy rate might increase, but it changed those dates at subsequent meetings. The FOMC then opted to formulate its forward guidance in terms of thresholds for unemployment and inflation. This is preferable to calendar dates because it is state contingent. Yet, the FOMC has specifically said that the thresholds are not triggers — they are not firm commitments and they may change. The Committee has repeatedly opted for language that allows a great deal of discretion to behave as it chooses, depending on the circumstances. But effective forward guidance demands commitment. When the Committee stresses the general flexibility of its policy decisions or makes vague references to data dependency, it does little to clarify the FOMC's intentions about future policy, even though clarity is what the FOMC wants to provide to the markets through its forward guidance. Thus, there is a fundamental tension between wanting to provide clarity as to the forward course of policy and wanting to maintain complete discretion. The Committee has failed to address this tension, which undermines the effectiveness of its policy.

I would add that this tension is not new. The Committee has typically preferred discretion over systematic policy. Yet, in normal times, the conduct of policy was more predictable and the public had come to expect policy to play out in mostly understandable ways. Since the crisis, the old "rulebook," so to speak, has been thrown out, but we haven't replaced it with anything except some vague promises that have changed over time. This naturally leads to a lack of clarity in the eyes of the public and undermines the effectiveness of the forward guidance the Committee offers.

In my view, rather than try to maintain discretion, policymakers would achieve better economic outcomes and greater clarity by taking a systematic approach to policy. But how do we get there from here? I think we could vastly improve policy going forward by doing three things, which would begin to normalize monetary policy.

• The first step is to wind down our asset purchases by the end of the year in a gradual and predictable manner. As I said, I see little if any benefit from these purchases, and growing costs.
• The second step is for the FOMC to commit to its forward guidance on the fed funds rate path, that is, to begin treating the 6.5 percent unemployment rate and the 2.5 percent inflation rate in the guidance as triggers rather than thresholds.
• The third part of the strategy is to provide information on how our interest rate policy will evolve after the trigger is reached. A commitment to a robust policy rule, perhaps consistent with the way policy was conducted prior to the crisis, would provide needed clarity on how the Committee intends to vary its policy in response to changes in economic conditions.

I want to emphasize the importance of data over date. If the Committee's economic outlook is broadly realized, there will likely be a moderation in the pace of purchases later this year. If the performance of the economy is weaker, the Committee may delay before moderating purchases or even increase them. If the economy strengthens faster than the Committee anticipates, the pace of purchases may be moderated somewhat more quickly. The path of purchases is in no way predetermined; we will monitor economic data and adjust our purchases as appropriate.