The Fed has done its job... It’s now up to fiscal authorities to make it work.

To put it bluntly, with unemployment too high and inflation too low — and both forecasted to stay that way over the next two years — we have missed on both of our policy objectives. There is currently no policy conflict between improving the employment and inflation outcomes. This leads me to conclude that accommodative monetary policy continues to be beneficial for achieving each of these goals.

Several notable forces combined to encourage the resumption of stronger growth. On the policy side, as I mentioned, the Federal Open Market Committee provided further stimulus through purchasing Treasury securities. This, plus the lagged effects of its previous measures, helped to improve financial conditions.

You can never say never, but I cannot imagine a convincing argument for further quantitative easing after this round, given what is developing now in the economy.

The ability to make monetary policy decisions that are free of short-term political influence is critical for central banks. This is especially true because the effective conduct of monetary policy requires a long-term perspective. A central bank that is subject to political pressure might opt for policies that favor rapid expansion in the near term at the expense of higher inflation in the future. Such actions would surely result in the loss of the confidence and credibility that are needed to achieve the objectives of monetary policy.

If the economy begins to grow more quickly and the sustainability of this recovery continues to gain traction, then the purchase program will need to be reconsidered along with other aspects of our very accommodative policy stance. We are a year and a half into a recovery, although a modest one. The aggressiveness of our accommodative policy may soon backfire on us if we don’t begin to gradually reverse course. On the other hand, if serious risks of deflation or deflationary expectations emerge, then we would need to take that into account as we adjust our policy stance.

In essence, the Federal Open Market Committee has maintained an emergency monetary policy stance in a recovering economy and has continued to ease into the recovery. I believe these actions risk creating a new set of imbalances, or bubbles. Importantly, such actions as they continue are demanding the saving public and those on fixed incomes subsidize the borrowing public.

The Fed cannot wave a magic wand and make the problems remaining from the preceding period of excess vanish immediately. But we can provide essential support for the needed adjustments.

I am sympathetic to the view that policy-makers should consider intervention in certain circumstances. That may simply be by speaking against the practices ... as opposed to taking action with interest rates.

As reported by Reuters.

Stability is a fine goal, but it is not a final one. Long after panic conditions have ended, stability threatens to displace economic growth as the primary macroeconomic policy objective. But we must recognize that the singular pursuit of stability, however well intentioned, may end up making our economy less productive, less adaptive, and less self-correcting--and in so doing, less able to deliver on its alluring promise. This fate, however, does not have to be ours. The U.S. economy is capable, in my judgment, of delivering more.

[A]s the payments system continues to evolve, the Federal Reserve's role will need to change.  In my view, it would not be desirable for the Federal Reserve to scale back its presence in retail payments or even exit retail payments as some might advocate.

Congress created the Federal Reserve System with independent regional Reserve Banks and a Board of Governors in Washington that provided checks and balances — checks and balances between centralization and decentralization, checks and balances between the public and private sectors, and check and balances between Wall Street and Main Street — all to ensure that policy decisions were balanced and independent.

Congress also wanted a central bank accountable to Congress, yet not subject to undue political influences. That is why Congress chose to make the Fed independent from the Treasury Department and the administration; why Fed Governors have 14-year terms; why the 12 Reserve Banks are structured more like banks than like government agencies; and why Reserve Bank employees, officers, and directors are generally restricted from engaging in political activities.

In my time at the Federal Reserve, starting in 2005 and working predominantly under the chairmanship of Ben Bernanke, my colleagues and I have been focused primarily on finding a way to undo past errors and mend the system. I believe that the initiatives taken by my fellow “banksters” at the Federal Reserve prevented us from falling into the chasm of an economic depression.

We have been very careful to calibrate our actions so as to accommodate the needs of credit markets and the economy, not political imperatives. We are well aware that some of our balance sheet additions, designed to pull markets and the economy from the edge, have raised a few eyebrows (like the $1.25 trillion in mortgage-backed securities we have pledged to purchase if necessary—although it has unquestionably driven mortgage rates to historic lows). And while it is not unusual for the System Open Market Account to buy Treasuries along the yield curve, the FOMC’s decision to purchase $300 billion in U.S. Treasuries—a decision made to improve the tone in the private credit markets—has been viewed by some as skating a little too close to the edge of political accommodation.

I can tell you that the FOMC is well aware of the doubts being voiced about its intentions. I can also tell you that nobody I know on the committee wants to maintain our current posture for any longer and to any greater degree than is minimally necessary to restore the efficacy of the credit markets and buttress economic recovery without inflationary consequences. Indeed, as I speak, we are studying ways to unwind our balance sheet in a timely way.
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[T]here are concerns that the Federal Reserve will be politicized. For example, some have called for increased congressional involvement in the selection of Federal Reserve policymakers and a reduced role for member banks. I trust that the Congress will resist this initiative and not upset the careful federation that has for so long balanced the interests of Main Street with those of Washington, just as we at the Federal Reserve must resist the urgings of some to accommodate the short-term financing needs of the Treasury.

“I know that, in some ways, my question should be addressed to Secretary Geithner but, as I read it today, you have chosen to now get married, and once you’re married you do have to answer for your spouse — as I do, as my wife does when I write a bad check she has to explain it,” he {Rep. Michael Capuano} told Bernanke.

To which Bernanke replied: “We’re not married, we’re just good friends.

As reported by The Wall Street Journal Real Time Economics Blog.