“With numerous monetary policy actions still on the table, and others still affecting the economy with a lag, it may be especially difficult to remove policy accommodation at the appropriate pace and at the appropriate time,” Bullard said at an investment conference sponsored by Credit Suisse Group AG. “One may want to approach such a situation with caution.”

We will be providing in our minutes and in our survey of economic projections, which will be released in three weeks, will be providing some additional qualitative information about people's -- participants' views of the balance sheet going forward.

The reason that I can't provide all that information now is basically that we received, you know, a whole range of qualitative comments and we had further discussion during the meeting yesterday and today. And so, you know, we need -- we need a little time to -- to summarize that and to have it approved. You know, the minutes, of course, in the MPC are approved by the entire committee. And so in that respect, it will be a definitive statement about what we currently know about -- about the balance sheet.

I can say a few things. I know, you know, one is that it certainly remains -- expanding the balance sheet certainly remains an option, one that we would consider very seriously if -- in particular if progress towards full employment was -- continued or became more inadequate, or if inflation remained exceptionally low.

So we'll continue to look at that. As we say in our statement, we're prepared to take additional measures in general, and that would be certainly one class of measures we would want to consider.

I can make one additional point, which maybe wasn't obvious, which is that, in June, we provided some principles relating the -- the sales of assets, ultimate sales of assets, to the path of interest rates.

And those remain -- those principles remain in force. And so one implication of our extension of our expected point of takeoff to late 2014 is to imply that the initial sales from our balance sheet, which, again, are far down the road, but that begins, that will be later than previously thought. That will be presumably in 2015.

So we do expect to hold our balance sheet at a high level for a longer period.

Additional sales, again -- I'm sorry -- additional purchases remains a topic that we are still debating, and it will depend both on our assessment of the efficacy and risks of that particular tool but also of how the economy's evolving.

In June, we provided some principles relating the sales of assets—ultimate sales of assets—to the path of interest rates, and those remain—those principles remain in force. And so one implication of our extension of our expected point of takeoff to late 2014 is to imply that the initial sales from our balance sheet, which again are far down the road but—that begins—that will be later than previously thought. That will be presumably in 2015.

“I look forward to exiting from accommodative monetary policy,” Fisher told reporters, while declining to say when an exit might take place. “The question is timing.” Holding the balance sheet steady after June is a “first step.”

“Somewhat tighter monetary policy is possible by the end of the year,” he said today at a press conference, after speaking at an event organized by the Bank of Finland in Helsinki. “We will have to begin exiting from our policies long before the unemployment rate is down to what people would like to have. That’s going to be a difficult decision.”

In late March 2011, I outlined a proposal for a systematic, rule-based approach that would involve the Fed’s selling assets from its portfolio as it increased its policy rate, with the pace of sales dependent on the state of the economy.

The first step of the normalization process would be to increase the interest rate paid on reserves and the targeted federal funds rate away from the zero bound, perhaps to 50 basis points. The Federal Open Market Committee would also announce its intention to stop re-investing the proceeds from maturing agency and Treasury securities. These decisions would initiate the normalization process and begin to raise the funds rate and shrink the balance sheet from the start.

Sales of assets between meetings beyond those maturing would also be tied to economic conditions, just as policy rate decisions are. The Fed would announce a pace of sales, which would increase when the Committee chose to increase the policy rate. Since the amount of securities to be sold between meetings would be determined in advance, the public and markets would see the Fed shrinking its balance sheet in a predictable manner.

Fisher, who has been a vocal critic of the current course of monetary policy, also said the Federal Reserve has not agreed yet on a sequence of events in which it would start its exit strategy from hyper-loose monetary policy. He said there have been discussions on several options. "We really didn't lay out a sequence, we are having a discussion on an exit strategy and we have been having those discussions for quite some time," he said.

Given my outlook, I think that the current stance of monetary policy, with short-term interest rates close to zero, is appropriate and supports the FOMC's dual mandate of price stability and maximum employment. In fact, my outlook for the economy that I have been discussing is based on the Committee keeping the federal funds rate close to zero for an extended period of time.

Nevertheless, monetary policy will eventually have to become less accommodative, and we have been developing the tools that we will use to exit from our current policy stance. I am confident that we will be ready to use them when the time is right.

At some point, presumably early in our exit process, we will -- I suspect based on conversations we've been having around the FOMC table -- it's very likely that an early step would be to stop reinvesting all or a part of the securities which coming -- which are maturing. But take note that that step, although a relatively modest step, does constitute a policy tightening, because it would be lowering the size of our balance sheet and therefore would be expected to essentially tighten financial conditions.

"There are two things: the size of the adjustment will be a factor, and the duration before we introduce the adjustment will be a factor," Hoenig said. "I think the smaller, the sooner, then you get expectations generated and you get people thinking, 'I'd better match my assets and liabilities because if I don't I'm going to find myself in trouble.'"

With hindsight, I think it is fair to say that policymakers [in the last cycle] overestimated the extent to which high unemployment would keep inflation from accelerating, and as a result, waited too long to withdraw monetary stimulus. Four years of 3 percent inflation may not have been the worst of all possible outcomes, but I do not consider it a success. I hope we do better this time. In particular, I believe we need to heed the lesson of the last recovery that inflation is capable of rising even if the level of economic activity has not returned to its pre-recession trend.

[T]he Fed should adopt an explicit numerical inflation objective. Moreover, in my view, now is an opportune time to do so. The apparent strengthening of the U.S. economy suggests that, in the not-too-distant future, monetary policy will have to begin reversing course from a very accommodative policy stance. As we choreograph that exit, I believe that the Fed should do all it can to underscore its commitment to maintaining price stability.

...

Some people may argue that there is no need to articulate a numerical inflation objective because the Fed has established a strong record of maintaining low and stable inflation over the last two decades. But this is not an argument against an explicit target. It is an argument against commitment.

"We have an ultra-easy, uber-easy monetary policy in the U.S. and we have to think of how we are going to exit from this policy in a way that keeps inflation low and stable,” Bullard said.

“I do think the economy has come in stronger than we anticipated at the time of the November decision to embark on” the bond purchases, Bullard told reporters.

Shrinking the Fed’s $2.65 trillion balance sheet should be done actively rather than by “runoff” through maturing mortgage-backed securities, Bullard said. “That is a passive policy,” he said. “That doesn’t sound like optimal policy to me.”

We can exit and will exit when time comes but that doesn't mean that exit is close at hand.