Federal Reserve Bank of Dallas President Richard Fisher said interest rates in the country won’t “imminently” be increased.

We have used the language of an extended period... (policy tightening) is not something I anticipate happening over the next several months. Certainly not.

We all know that the neutral rate is not zero.  Equally obvious to me is that a rate of 1 or 2 percent is not tight monetary policy -- it is still very accommodative.  As we consider our choices, I would not support a tight monetary policy in the current environment, but my experience tells me that we will need to remove our very accomodative policy sooner rather than later.  Even if we were to start immediately, much time would pass before incremental increases could be considered tight or even neutral policy.

[T]here is still a lot we don't know about the magnitude and duration of the effects of these policies {Fed asset purchases}. Our standard monetary policy models do not incorporate financial frictions that lead to asset purchases having real effects. We lack both the data and theory to provide strong guidance on these policies. Truly, we are sailing in uncharted waters, marking our maps with every bit of information along the way.

I think the trick here is to assist the functioning of the private markets without signaling in any way, shape or form that the Federal Reserve will be party to monetizing fiscal largess, deficits or the stimulus program.
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Throughout history...what the political class has done is they have turned to the central bank to print their way out of an unfunded liability. We can't let that happen. That's when you open the floodgates. So I hope and I pray that our political leaders will just have to take this bull by the horns at some point. You can't run away from it.

As reported by Wall Street Journal.

We evaluate existing and prospective programs based on the answers to three questions:  First, has normal functioning in the credit market in question been severely disrupted by the crisis?  Second, does the Federal Reserve have tools that are likely to lead to significant improvement in function and credit availability in that market, and are the Federal Reserve's tools the most effective methods, either alone or in combination with those of other agencies, to address the disruption?  And third, do improved conditions in the particular market have the potential to make a significant difference for the overall economy?

"If you compare buying Treasuries to a targeted credit program, the targeted credit program will result in probably lower interest rates in the targeted sector, but higher interest rates in the other sectors."

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"I would have preferred a program of buying Treasuries over targeted credit programs like the Term Asset-Backed Securities Lending Facility", Lacker said. He said he would not be opposed to the purchase of long-term Treasury securities such as 10-year notes and 30-year bonds.

As reported by Bloomberg News

(T)here are two aspects of this (asset-focused) policy approach—growth of the Fed's balance sheet in absolute terms and change of the composition of assets. Even with the federal funds rate effectively at zero, there is ample scope to do more of both if conditions require.

Evans said that based on the outlook for rising unemployment, falling industrial production and a wider output gap, economic models suggest rates should be below zero.

"If it were not constrained by zero, those models would want to push it below zero, but that's not possible," Evans told reporters after a panel at the American Economic Association's meeting in San Francisco.

Quantitative easing, a way to flood the banking system with large amounts of money, "is a way to mimic below-zero rates and provide support to the economy," he said.

As reprted by Reuters.

Federal Reserve Bank of St Louis President James Bullard said on Saturday that an explicit inflation target would help policy-makers prevent either deflation or inflation from taking hold in the United States.

"An inflation target would help focus expectations," he told a panel discussion during the annual meeting of the American Economic Association.

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"Maybe now would be a particularly good time to do that because you have this possibility of expectations drifting off to deflation or a lot of inflation. ... I think it would help," said Bullard

The likelihood of further weakening of labor markets, and a reluctance of consumers or businesses to increase spending until economic conditions are more certain, together imply a continued difficult environment for banks.  There are several conditions necessary for financial markets to resume a more normal state, and I would like to briefly discuss each.

First, we need short-term credit markets to return to normalcy. 

...

Second, we need to see some improvement in the housing market before financial markets will resume a more normal state. 

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Third, officials must take into account – and develop policies and actions that reflect –  the degree to which monetary policy tools are currently deployed.   The stance of U.S. monetary policy reflects our rate reductions, with the Federal Funds rate target currently at 100 basis points.  Given that interest rates cannot be negative, further monetary-policy actions are limited by the zero lower bound for interest rates.  While other monetary policy tools can be employed, increasingly many observers and commentators are suggesting that fiscal stimulus will be an important element of economic recovery.

The striking feature of central bank lending during the recent turmoil is the extent to which it has extended well beyond the boundaries that previously were understood to constrain such lending, both in the range of institutions and the contractual terms on which credit has been provided. Intervention has been driven by a desire to prevent damaging disruptions to financial markets, and thus reduce the overall costs of the turmoil. While this objective is clearly understandable, central bank lending can create the expectation that similar support will be forthcoming when market disruptions occur in the future. Such expectations can themselves be very costly, because they can distort the incentives faced by, and as a result, the choices made by private-sector participants.

More time and study will be needed before we can be confident about the lessons of the current crisis.  But... based on what we know today, I still have serious questions about whether trying to use monetary policy to check speculative activity on a regular, systematic basis would yield benefits that outweigh its costs.

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...in the 2006 speech I concluded that a strategy of extra action might be justified if three tough conditions were met.  First, policymakers must be able to identify bubbles in a timely fashion with reasonable confidence.  Second, a somewhat tighter monetary policy must have a high probability that it will help to check at least some of the speculative activity.  And third, the expected improvement in future economic performance that would result from the curtailment of the bubble must be sufficiently great.  Of course, we live in an uncertain world, and accordingly policymakers should always be open to the possibility that these conditions might be satisfied and that extra action would be appropriate.  But my thought at the time was that, in practice, the likelihood of ever meeting the three conditions seemed remote. 

 "We have worked on the fuzzy border between monetary and fiscal  policy," Kohn said. " Now that the legislation has passed I would hope we could stay on the liquidity side."

As reported by Market News International.

Central banks should be wary of placing too much faith in model-based analyses, which are necessarily predicated on past empirical correlations and relationships. As we have seen, financial innovation can induce structural changes that can importantly alter the way financial institutions, markets, and the broader economy respond to shocks. For this reason, policymakers should take a critical approach to evaluating analyses of this sort, and should always probe to find the sensitivity of results to unstated assumptions that may no longer be valid.