If the labor market continues to improve and inflation expectations remain well-anchored, then I would expect -- in the absence of some dark cloud gathering over the growth outlook -- to support a decision to begin normalizing monetary policy later this year.

Those of us who are the current trustees of the Fed's reputation- the FOMC- must be especially careful that nothing we do appears to be politically motivated. In nourishing the growth of the economy and employment, we must avoid erring on the side of coddling inflation to compensate for the inability of fiscal and regulatory policy makers in the legislative and executive branches to do their job. We must continue to protect the independence of the Fed.

I feel, Congressman, that it would be a grave mistake for the Fed to commit to conduct monetary policy according to a mathematical rule. No central bank does that.

And I believe that although under the legislation we could depart from that rule, the level of short-term scrutiny that would be brought on the Fed in real-time reviews of our policy decisions would -- would essentially undermine central bank independence in the conduct of monetary policy.

And I believe that global experience has shown that we have better macro-economic performance when central banks are removed from short-term political pressures and given the independence to, within a framework in which their goals are clear, and in our case those are specified by Congress, given operational independence, decide how to conduct monetary policy.

The Federal Reserve is the most transparent central bank, to my knowledge, in the world. We have made clear how we interpret our mandate and our objectives, and provide extensive commentary and guidance on how we go about making monetary policy decisions.

Senator, I would welcome the appointment of a community banker to our board That said, I don't support requiring it via legislation. There are seven governorships. The board has many different needs. I think if we were to sit down and make a list of all of the kinds of expertise that are needed and are useful, there would be more than seven items on that list. And I would, you know, prefer to see appointments made in light of the priorities, including for a community banker, rather than for the indefinite future locking in and earmarking particular seats for particular purposes.

I feel that's a road that could go further in a direction that would worry me. If we're earmarking we could end up earmarking each seat for a particular kind of expertise. And I think greater flexibility needs due change over time. But that's not in any way to diminish my support for seeing a community banker appointed to the board.

Although theres general consensus that the measures we took in the immediate wake of the crisis were necessary, critics of the Feds policies believe that weve been too accommodative since then, and that after 2010, we shouldve stepped back and let the economy move on its own. I often hear that the economys recovering, so why is the Fed still intervening? Or, in other words: enough is enough.

Ending accommodative policy prematurely would have been a major mistake. In 2010, the economy wasnt yet back on trackin fact, it had barely begun to recover. When we initiated the second round of asset purchases, or QE2, in November 2010, the unemployment rate was around 9 percentonly slightly down from its peak of 10 percent.

The latest round of asset purchasesor QE3was announced in September 2012, when the economy was better, but still well short of healthy. At around 8 percent, the unemployment rate had improved, but was still very high by historical standards, and inflation was running below the preferred 2 percent longer-term goal. In both situations, the very real danger of the recovery stalling and the economy slipping into a state of prolonged stagnation called for additional monetary stimulus.

When you break a leg, you dont just snap the pieces back into place; you leave the cast on until the bone heals. Otherwise, you risk doing even greater damage. And in this case, the economy wasnt ready to walk on its own. Not doing anything, or not doing enough, would just have led to more pain and the need to take even stronger measures down the road.

I was recently in Japan, which offers a real-life example. They shied away from sufficiently aggressive policy and the Japanese economy remained mired in deflationary stagnation for 20 years. Only now are they starting to put more forceful policies into place, and, happily, theyre workingbut those policies are much more forceful than they wouldve been had they been instituted 15 or 20 years ago. In keeping with the patient analogy, you can keep the cast on for a few weeks and let it heal, or you can go without and require extensive surgery later. So if we take the longer view, the Feds actions are in line with people who prefer a light policy touch: were essentially doing less now to avoid having to do more later.

I am aware that not everyone is a fan of the Fed or of accommodative policy. Im not deaf to criticism, and reasonable people disagree on policy all the time. But the bottom line is, it has worked. And the asterisk is that its not permanent. We wont raise interest rates for some time, which is the real marker of tightening policy. However, weve already considerably reduced the pace of our asset purchases, which will likely end this year. Were moving towards normalization, and as the economy continues to improve, well take off the cast; when its able to move on its own, well take away the walking stick. The events of the past several years demanded strong policy action, and we were right to take it. But it doesnt reflect a fundamental shift in our goals or strategy.

Central bank actions constitute monetary policy if they alter the quantity of its monetary liabilities, often referred to as high-powered money. Central bank actions constitute credit policy if they alter the composition of its portfolio — by lending, for example — but do not affect the outstanding amount of monetary liabilities.

…

I’ll close with a reminder that establishing credible limits to central bank intervention in credit markets is critical to central banks’ core monetary policy mission. Entanglement in the distributional politics of credit allocation inevitably threatens the delicate equilibrium underlying central bank independence, which has been so essential to monetary stability. The fallout from the 2008 crisis vividly illustrates the risks to that equilibrium. The breakdown of that equilibrium in the 1970s provides vivid lessons in the dangers of credit allocation. Not only did Fed policymakers need to resist political pressure to lower unemployment, they also had their hands full resisting pressure to buy federal agency debt. The disastrous results for inflation are well known. Less well known is that by 1977, the Fed owned $117 million in debt issued by Washington, D.C.’s transit authority — with the bizarre result that the Fed wound up financing the construction of the Washington Metro.

I think it's important to understand that this is a payment innovation that's taking place entirely outside the banking industry.
And to the best of my knowledge, there's no intersection at all, in any way, between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate.
So the Federal Reserve simply does not have authority to supervise or regulate Bitcoin in any way.
I think my understanding is that FinCEN and the Department of Justice have -- I mean, one concern here with Bitcoin is the potential for money laundering. I think that they have indicated that their money laundering statutes are adequate to meet their own enforcement needs.
But it certainly is appropriate -- so the Fed doesn't have authority with respect to Bitcoin. But it certainly would be appropriate, I think, for Congress to ask questions about what the right legal structure would be for, you know, virtual currencies that will involved non-traditional players that aren't regulated...

The first institution was the brainchild of our first Treasury secretary, Alexander Hamilton. His efforts led to the creation of the First Bank of the United States, which was awarded a 20-year charter by Congress in 1791. Although the First Bank's charter was not renewed, the War of 1812 and the ensuing inflation and economic turmoil convinced Congress to establish the Second Bank of the United States, which operated from 1816 to 1836. However, it too did not win a renewed charter, with President Andrew Jackson leading the opponents in a heated political debate. I believe that both these institutions failed because they were unsuccessful in overcoming the public's mistrust of centralized power and special interests. Indeed, without public confidence in these institutions, they were doomed. After the first two attempts, it took nearly 80 years before Congress tried again to establish a central bank. The outcome was a new central bank with a governance structure designed to decentralize authority and promote public confidence a decentralized central bank. This structure helped overcome political and public opposition that stemmed from fears that a central bank would be dominated either by political interests in Washington or by financial interests in New York. Yet even this structure, which has now lasted a century, has evolved, and the balance of power has shifted over time in response to economic events and legislation. I believe that the fundamental concept of a decentralized central bank has great merit, in part, because it helps to preserve the independence and maintain the public trust in the institution. Independence is essential if a central bank is to play its fundamental role in preserving the purchasing power of a fiat currency. History is replete with examples of governments using the power to print money as a substitute for making tough fiscal choices, and the results were disastrous.

Let me point out that the instructions from Congress call for the FOMC to stress the long run growth of money and credit commensurate with the economy's long run potential. There are many other things that Congress could have specified, but it chose not to do so. The act doesn't talk about managing short-term credit allocation across sectors; it doesn't mention inflating housing prices or other asset prices. It also doesn't mention reducing short-term fluctuations in employment.

Many discussions about the Feds mandate seem to forget the emphasis on the long run. The public, and perhaps even some within the Fed, have come to accept as an axiom that monetary policy can and should attempt to manage fluctuations in employment. Rather than simply set a monetary environment commensurate with the long run potential to increase production, these individuals seek policies that attempt to manage fluctuations in employment over the short run.

I’m a very big believer, the Fed Reserve is a very big believer in transparency and communication. I think transparency in central banking is kind of like truth-telling in everyday life.

You got to be consistent about it. You can’t be opportunistic about it.

In my view, we are unlikely to see much benefit to growth or to employment from further asset purchases. If I am right, then conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed’s credibility. This is quite costly: If the public loses confidence in the central bank, our ability to set effective monetary policy in the future will be harmed and households and businesses will feel the consequences.

Lockhart, when asked about remaining policy tools that could yet boost the slow and shaky U.S. economic recovery, said: "I am simply not of the view that we have exhausted all of our options.

"I think there are monetary policy tools and actions that are still available if the conditions require them."

Yes, bankers should serve {as directors of Federal Reserve Banks}. They provide valuable information about the economy, credit conditions and the payments system. There are high standards that apply to Reserve Bank directors, and when an individual no longer meets these standards, the director resigns voluntarily to allow someone who does meet the criteria to serve.

"As a president, I get a lot of incredibly useful information from the bank directors that serve on our boards and I think it would be a loss to me in my policy role to lose that valuable source of information," Kocherlakota said in response to audience questions following a speech at the South Dakota School of Mining and Technology

Discussing a "perception problem" with CEO's of major banks serving on the board of the New York Fed, Treasury Secretary Geithner said, "the American people should understand that.... those banks and the members of the board play no role in supervision. They have no role in the writing of the rules, and they play no role in decisions the Fed makes about how to respond to a financial crisis. Their role is a much more limited role, and the role is to help provide a perspective on what’s happening in the economy as a whole. But I agree with you that the, that perception is a problem. And it’s worth trying to figure out how to fix that."