If labor market conditions and the economy’s growth momentum were to be less favorable than in the FOMC’s outlook—and this is what has happened in recent years—I would expect that the asset purchases would continue at a higher pace for longer.

Before I am in favor of tapering I would like to see some assurance that inflation is going to move back towards target.

Recognizing the drawbacks of persistently low rates, the FOMC actively seeks economic conditions consistent with sustainably higher interest rates. Unfortunately, withdrawing policy accommodation at this juncture would be highly unlikely to produce such conditions. A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further. Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability.

Because only a healthy economy can deliver sustainably high real rates of return to savers and investors, the best way to achieve higher returns in the medium term and beyond is for the Federal Reserve--consistent with its congressional mandate--to provide policy accommodation as needed to foster maximum employment and price stability. Of course, we will do so with due regard for the efficacy and costs of our policy actions and in a way that is responsive to the evolution of the economic outlook

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.

One could argue that consistently missing our inflation target alone would justify a highly accommodative policy. However, coupled with persistently high unemployment, the justification for continuing highly accommodative policy by large-scale asset purchases is clear. This is a time when the dual mandate is important and, I would add, particularly useful for communicating policy to the general public.

Evans said to reporters after the panel he wants 200,000 payroll growth “month after month for at least six months, and a rising profile for that would be extremely welcome.”

In its current forward guidance, the FOMC has stated that it expects the fed funds rate to remain extraordinarily low at least until the unemployment rate falls below 6.5 percent. The FOMC could provide additional needed stimulus by lowering the threshold unemployment rate from 6.5 percent to 5.5 percent—that is, by changing one number in the existing statement.

To see why I say so, consider two possible scenarios. In the first, the public believes that the FOMC will begin raising the fed funds rate once the unemployment rate hits 6.5 percent. (To be clear: This belief is consistent with, but not necessarily implied by, the FOMC’s current forward guidance.) In the second, the public believes that the FOMC will defer the initial increase in the fed funds rate until the unemployment rate hits 5.5 percent. The higher unemployment rate in the first scenario means that monetary policy will be tightened sooner, which, in turn, will lead to the unemployment rate being higher for longer. Foreseeing that, people will save more in the first scenario than in the second, to protect themselves against these higher unemployment risks. Because they save more, they spend less, and there is less economic activity.

Thus, lowering the unemployment rate threshold to 5.5 percent would increase the demand for goods and thereby push upward on both employment and prices. Would this extra monetary stimulus result in an undue amount of inflation at some point in the future? ... To me, this historical evidence suggests that, as long as the unemployment rate remains above 5.5 percent, the medium-term inflation outlook will stay close to 2 percent.

I should be clear about a couple of aspects of the thresholds. First, the unemployment rate threshold is not a trigger for FOMC action. Thus, the FOMC may choose not to raise interest rates when the unemployment rate falls below 6.5 percent. Second, I see the FOMCs guidance as providing a great deal of protection against undue inflationary pressures. In particular, the commitment to keep interest rates extraordinarily low is off the table if the medium-term inflation outlook ever rises above 2.5 percent.

Federal Reserve Bank of Boston President Eric Rosengren said today the central bank should be “drawing down” its bond buying of $85 billion a month as the economy improves and at some point it should stop the purchases.

“On the other hand, if the economy does much worse, we have the option to be buying more of them,” he said in an audience question-and-answer session in Manchester, New Hampshire.

As reported by Bloomberg News

A disadvantage of this calendar-based approach was that it might not be clear whether changes in the date reflect changes in the FOMC's outlook for growth, for inflation, or a shift in the desired stance of policy. In December 2012, the FOMC therefore replaced the date with greater detail on the economic conditions that would warrant maintaining the federal funds rate at its present, exceptionally low level. Specifically, it stated that near-zero rates would likely remain appropriate for a considerable time after the asset purchase program ends and "at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."

It deserves emphasis that a 6-1/2 percent unemployment rate and inflation one to two years ahead that is 1/2 percentage point above the Committee's 2 percent objective are thresholds for possible action, not triggers that will necessarily prompt an immediate increase in the FOMC's target rate. In practical terms, it means that the Committee does not expect to raise the federal funds rate as long as unemployment remains above 6-1/2 percent and inflation one to two years ahead is projected to be less than 1/2 percentage point above its 2 percent objective. When one of these thresholds is crossed, action is possible but not assured.

“I think that unemployment will continue to tick down through 2013,” Bullard said today in an interview on CNBC television. A 7.1 percent rate “would probably be substantial improvement” in the labor market, he said, referring to the Fed’s goal for halting its open-ended monthly purchases.

When we achieve a stronger recovery in the context of price stability, I'll view it as consistent with our goals and not a reason to pull back on our policies prematurely. If you're trying to get a car moving that is stuck in the mud, you don't stop pushing the moment the wheels start turning, you keep pushing until the car is rolling and is clearly free.

But these calculations may underestimate the true magnitude of the problem. A funding ratio of 75 percent equates to an assumption of an 8 percent average annual return on the portfolio of investments. It's fair to ask whether this is a realistic assumption given current forecasts of the economic and financial environment. Arguably not.

Using this optimistic 8 percent return assumption, public state and municipal pension funds have an $800 billion funding gap to fill. Using a lower, more realistic return assumption (such as the longer-term rate on U.S. Treasuries) implies a $3 trillion to $4 trillion funding gap. You might call this "the other debt problem" in the United States.

I believe we could take further steps to improve our communications and reduce uncertainty over the path of monetary policy and reduce moral hazard. One enhancement would be to articulate a more rule-like approach to our decision-making process. This means making policy decisions based on available information in a consistent and predictable manner. One cannot know what the future holds or what future policy decisions will be. Policy will be data dependent, but the data should feed into a decision-making process in a mostly systematic or rule-like way.