"I would see an argument for initiating that exit [from the Fed's accomodative stance] in 2012 or 2013," Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank, told reporters after a speech at Washington University in St. Louis.

Kocherlakota made a similar comment at the same time last year, arguing that rate hikes were possible in 2011.

The Fed’s outlook for low interest rates until late 2014 “is a forecast of what we currently anticipate we’re going to do,” and policy makers could decide to raise their benchmark rate earlier or later, depending on how the economy evolves, Dudley said.

“As an accountable central bank in a democratic society, the Federal Reserve has an obligation to clearly articulate what it is trying to achieve with monetary policy,” he said. “The economic thresholds I am proposing put a higher and more predictable standard on the removal of accommodation.”

At our last meeting in January, the FOMC decided that economic conditions are likely to warrant that we keep short-term interest rates at exceptionally low levels at least through late 2014. I want to be clear, however, that this statement is by no means a commitment that we will not raise interest rates until late 2014. Rather, it is an expression of what the Committee judges to be the earliest time that we would likely raise interest rates based on our current economic outlook. Changes to the outlook could result in interest rates rising either sooner or later than late 2014.

I believe that the Fed should provide more information about its reaction function. The practice of using systematic rules as guides to monetary policy imposes an important discipline on policymaking and improves communication and transparency. This is because systematic rules make policy more predictable and therefore helps the public and markets make better decisions. Moreover, if policymakers choose to deviate from the guidelines, they are forced to explain why and how they anticipate returning to normal operating practices. Systematic policy also reduces the temptation to engage in discretionary policies.

I believe the Committee is still some way from agreeing on one systematic policy rule or reaction function. Such choices will involve elaborate discussions and agreement on the appropriate class of models and an agreed-upon loss function. One way to move toward more systematic policy would be to describe the variables that are important for our response function.

“I wouldn’t take QE3 off the table ever,” Bullard said in a CNBC interview, referring to a third round of purchases or quantitative easing. “We should use it only if the economy deteriorates and especially if the inflation numbers start to drift down into disinflation or deflation. Headline inflation is above target.”

“I thought the statement was talking down the economy” amid recent improvement, Fisher said. He said he views the 2014 pledge as “that rates will stay low for as long as it is practicable,” or “until we see improvement in the economy.”

I was … opposed to stretching this out, putting the late 2014 date in the statement. I am very disappointed with this. I thought it was an opportunity for the committee to get away from calendar dates and the committee didn't do that. I would have defected on this issue. I've been vocal about this before. I think the chairman correctly said that we can't forecast accurately that far ahead. He said it in a very - very funny, actually.

My only guess is that we will have to move before but I just got done saying we tried to forecast, so - you'd be better off to say wait and see, but I put it in 2013 so - but that's just my best guess.

You have to get started on normalizing rates at some point and it's not that once you move off zero and you go to 50 basis points, or 75 basis points, you don't exactly have a tight monetary policy. You still have extremely low interest rates by any normal metric and so it takes a while to turn the ship. So, to say that you're going to wait for such a long time to come off zero seems to me to be inconsistent with the way that the committee has behaved in the past and wanted to get going on the process, understanding that you're still providing a lot of accommodation to the economy even when it's only 1 percent or 1.5 percent, or 2 percent.

My predecessor at the helm of the Dallas Fed, Bob McTeer, used to say, “The first rule of forecasting should be ‘don’t do it.’” The second rule, he would add is, “If you give a number, don’t give a date.” But given the assignment to venture a vision as to where the fed funds rate would be in each of the next three years and over “the longer run” to the nearest one-quarter of one percent, the 17 intrepid souls of the FOMC, including yours truly, did so. Only three envisioned that the fed funds rate might rise from current levels by year-end 2012; six saw it doing so by year-end 2013 and 11 by year-end 2014. Over the longer term, the 17 members envisioned a funds rate of between 3¾ and 4½ percent.

Bob McTeer’s admonishment clearly does not resonate with the FOMC. And yet I would caution, again, that at best, the economic forecasts and interest-rate projections of the FOMC are ultimately pure guesses. I have yet to find a single economist on this planet who consistently forecasts the economy accurately, let alone projects with any precision the interest rate on overnight funds one year out or far into the future. If you examine the record of the Blue Chip economists or even of our superb Federal Reserve staff, you will find confirmation of a paucity of reliable economic forecasts.

My preferred policy would be one where we are even clearer in what our intentions are on the federal funds rate and monetary policy.

“I was not supportive of the most recent decision to extend the time frame for exceptionally low rates through 2014,” Plosser said. He also didn’t support the practice of “offering forward policy guidance by saying economic conditions are likely to lead to low rates through some calendar date.”

“Monetary policy should be contingent on the economic environment and not on the calendar,” said Plosser, who is not a voting member of the FOMC this year.

“Continuing to signal that we want to try to ease more raises into question our confidence in the economy,” Plosser told reporters after the speech.

STEVE LIESMAN: Let's talk about these interest rate forecasts that you're now publishing. There seems to be a lot of-- there's some disagreement between the statement which says that you expect it to remain-- low through mid-- through late 2014 and the forecast that came out later in the day. Which should the markets believe?

CHARLES PLOSSER: Well, I think two things. One is that interest rate projections in the SEP are not forecasts, people have to remember that they are projections of what each individual committee member thinks is appropriate policy, that is what should policy be, not what will policy be. And so they're making individual assumptions about the path of policy. And that reflects how over time that will reflect how policy evolves and the views of how the committee evolves.

In terms of the statement, the statement is a statement of policy, a statement by the committee. And it's reinforced by a vote of the FOMC. There's information content in both of those. If you look at the SEP projections of interest rates in the policy decisions you will see that there's a huge mass of people in and around 2014 and some beyond and some people sooner.

So it's not clear that the statement didn't reflect the modal view of what the committee and participants thought. But they are different exercises and so I think it's very important we understand the differences in our projections and the policy statement.

STEVE LIESMAN: If you watched the way the market reacted, they thought great at 12:30 when you said you expected it to remain low through 2014. But then we learned at 2:00 that there's not very much support for that later date on the board. Which is the right one?

CHARLES PLOSSER: Well, I think the fact of the matter is the statement's pretty clear although not as clear as it could be, that this is two-thousand-- late 2014 is contingent, it is conditional on the evolutions of the economy. Now, I think that we don't make that clear enough.

A lot of people have been reading the statement as if it was a commitment and it is not a commitment. And when you look at the SEP projections you-- it's pretty clear that everybody doesn't agree that this is a firm commitment. So it's not a commitment and it shouldn't be interpreted as a commitment. It's a conditional statement and I think revealing the projections in the SEP makes that even clearer that this is really not a commitment.

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STEVE LIESMAN: So Charlie, let's go back over this idea. If there's a conflict, and there was, but if there's a conflict between this policy statement of the calendar date and the SEP which one prevails?

CHARLES PLOSSER: Well, it's not clear that you want one dominate the other. One, the SEP projections are in fact the range of views of the committee. If you look at the policy statement of late 2014 and you looked at the modal value of the range of views it was probably pretty close. The idea is for them not to be.

You would think that the range of views would be captured in... I think having a calendar date in the statement is bad policy, I've said that over and over again. And by getting rid of the calendar date in the policy statement-- because I think it's bad communication, I think the SEP projections speak for themselves, they give you the view about where people currently stand.

What's important about that is that you will see over time when the next quarter comes and we do another SEP projections and you have the appropriate policy rates in there, you may very well see that change. It may go out further or it may actually begin to pull in. That's really a more informative way to think about forward guidance as we call it, from my perspective.

At the recent meeting that concluded on January 25, this guidance stated that the Committee currently anticipates that 'economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.'

"I dissented because I do not believe economic conditions are likely to warrant an exceptionally low federal funds rate for so long. I expect that as economic expansion continues, even if only at a moderate pace, the federal funds rate will need to rise in order to prevent the emergence of inflationary pressures. This increase in interest rates is likely to be necessary before late 2014.

"In addition, the Summary of Economic Projections (SEP) now contains detailed information on the forecasts of Federal Reserve governors and Reserve Bank presidents for the evolution of economic conditions and the federal funds rate under appropriate policy. My dissent also reflected the view that statements about the future path of interest rates are inherently forecasts and are therefore better addressed in the SEP than in the Committee's policy statement.

Robin Harding:  Mr. Chairman, while I look at these forecasts for 2014, the median of the forecast is I think 0.75 and the mean is 1.12 percent. If I were to draw a line for these--these dots, how should I draw it so I best understand what the FOMC is most likely to do?..

Chairman Bernanke:  Well, again, I want to first I want to emphasize that there is no mechanical relationship between these projections and the outcomes of the FOMC decisions. Of course, they're a big input into those decisions but it's a collective decision. If you want to draw lines, my guess I would--I guess my suggestion would be to look at the median, the middle of the--of the distribution because we do have a democratic process in the Committee, and so the median will give you some sense of where the weight balances against the higher-- in favor of higher or lower--lower rates. Again, we did note that in support of our assessment of late 2014, which is a Committee decision and of course there was a 9 to 1 vote in favor of that, but that is supported by the observation that 11 of the 17 participants expect the funds rate at the end of 2014 to be 1 percent or less. And so presumably the take-off would not be much earlier than that.

In my view, making a perceived commitment based on calendar time risks confusing the public about how policy is formed. If the Committee wishes to provide forward guidance, then a better way of conveying such information is necessary. My own view is that it would be better to provide more information about how policy responds to economic events, a sort of reaction function, than to make commitments based on the calendar that we may not keep.