I would not take off the table at least consideration {of tapering in December}.

“I would not take off the table at least consideration at that time,” Lockhart told reporters in Oxford, Mississippi, in response to a question on tapering in December. “The question of changing the mix of accommodative tools ought to be on the table at every meeting for the foreseeable future.”

“For me, you don't have to be in a hurry {to taper} because of low inflation," St. Louis Federal Reserve President James Bullard told CNBC television.

Bullard, who at the Fed's policy meeting last week voted in favor of maintaining the central bank's monthly bond buying campaign at an $85 billion monthly pace, said he wanted to see inflation heading back toward policy-makers' 2 percent goal before tapering bond buying.

“I would say in terms of my own support, that I wouldn’t rule out my supporting doing something {on tapering} before March.

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“I think at the earliest possible moment we need to focus on transitioning back to having an interest rate-driven monetary policy,” he said.

“I can envisage us holding the base rate low for a very long time until we see an acceleration in the economy and especially in our case given our mandate on employment, as long as inflation stays in its current range, at less than 2 percent,” Fisher said.

While {Williams} is not ready now to put a cap on the size of the Fed's third round of quantitative easing, he indicated he could support such a cap when the FOMC has sufficient evidence to start tapering.

"Maybe when we get to that point ... we may turn to a more specific roadmap at that point," he said.

"Maybe if we were ready ... to stop purchases (the FOMC could) just announce a plan to stop purchases over the next 10 months and finish with a certain amount of purchases," he went on. "Instead of leaving it out there in the open (the FOMC could) make it really clear ... that total purchases will be that (amount)."

Williams said such a finite description of the winding down of QE3 could be "a way to ease this communication challenge of tapering."

"If we needed to we could start the program again," he added.

“To the extent that key labor market indicators continue to show cumulative improvement, the likelihood of tapering asset purchases will continue to rise,” Mr. Bullard said in a presentation prepared for delivery at a hometown speech. That is because the Fed’s “criterion of substantial improvement in labor markets gets easier and easier to satisfy on a cumulative basis as labor markets continue to heal,” the official said.

I’d like to note here that the exact pattern of the reduction in purchases eventually taken isn’t so critical because the path is likely to have only a marginal impact on what is most important — the total amount of purchases that are eventually made. The assumption underlying my current forecast is that by the time we end the program, total asset purchases since January 2013 will be in the neighborhood of $1.25 trillion. This is a very substantial program — one that is about double the size of our QE2 program that we ran between the fall of 2010 and the summer of 2011.

The September decision not to reduce purchases clearly took some market participants by surprise. For me, the decision was a close call, and I would have been comfortable with a small reduction in purchases. However, as the minutes of the September FOMC meeting reflect, there were legitimate concerns about the strength of incoming economic data, the economic effects of tighter financial conditions and of tighter fiscal policy, and the prospect for disruptive events on the fiscal front.7 I supported the decision as a reasonable exercise in risk management. Events since the September meeting suggest that the concerns regarding fiscal matters were well founded.

I would like to push back against the narrative that the decision at the September meeting has damaged the Committee's communications strategy. In its communications, the Committee seeks to influence market conditions over the medium term in a way that is consistent with its policy intentions… [A]t the end of the day, my own judgment is that market expectations are now better aligned with Committee assessments and intentions.

The September decision underscored the Committee's intention to determine the pace of purchases in a data-dependent way based on progress toward our objectives. Moreover, the modest net tightening in financial conditions since the June meeting has likely reduced the prevalence of highly leveraged, speculative positions. I believe that the market is now prepared for a reduction in purchases when the economic outlook and the broader situation support it.

Short term rates have fallen back since the September meeting, and are now better aligned with the Committee's forward rate guidance. This is particularly important because, as the Chairman stressed in September, the Committee views rate policy as its stronger and more reliable tool.

Putting all of this together, with monetary policy continuing to provide needed stimulus, I expect economic growth to pick up somewhat next year. As the economy continues to get better, the highly accommodative stance of monetary policy will need to be gradually adjusted back to normal. The first step will be to slow the pace of asset purchases over time, eventually ending them altogether. This won’t be a slamming on the brakes, it will be an easing off the gas. And it will not be a fixed date on the calendar. Instead, it will be in response to economic developments and the progress we have made towards our dual goals of maximum employment and price stability.

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In my own projection, even though I expect the unemployment rate to fall below 6½ percent early in 2015, I don’t currently expect that it will be appropriate to raise the federal funds rate until well after that, sometime in the second half of 2015.

“We’re not on a pre-set course,”Charles Evans, president of the Federal Reserve Bank of Chicago told reporters on the sidelines of a monetary policy conference in Oslo. He said the Fed’s decision to start reducing its $85 billion in monthly bond purchases “could be in October, it could be in December, but it also could be at the January meeting.”

Delaying action not only allows potential costs to grow, it also has the potential to threaten the credibility and the predictability of future monetary policy actions. Policy moves that surprise the market often result in additional volatility. And by deciding that it needs to await further data, the Committee is suggesting its desire to be “data dependent” involves putting more emphasis on the most recent data points, which can be volatile and subject to revision, rather than on its own medium-term view of the economy. Another risk is that markets might misconstrue the postponement of action as reflecting a Committee assessment that the broader economic outlook is substantially weaker, when that is not the case.

Beyond the communication challenges associated with asset purchases, explaining the Committee’s interest rate policy and how long rates will remain near zero will be a crucial next step. To further mitigate risks when the time comes to start raising interest rates, it may be important to signal that increases in the federal funds rate, after liftoff, are likely to be gradual in order to gauge the economy’s response.

While the decision not to pull back on the Federal Reserve‘s easy-money policies last week was a “close call,” a veteran central banker on Monday suggested it will be hard for the Fed to find cause to trim its bond buying program at its upcoming October meeting.

In an interview with the Wall Street Journal, Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy is currently beset with uncertainty resulting from economic data that’s proved “ambiguous.” At the same time, a showdown between the White House and the Congress over the budget and borrowing powers has the potential to cause economic trouble if it’s resolved as poorly as past episodes, the official said.

“In the short time between now and the October meeting, I don’t think there will be an accumulation of enough evidence to dramatically change the picture” about where the economy now stands, Mr. Lockhart said.

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Mr. Lockhart said the October FOMC “is a live meeting” and if the Fed wants to act, it can and will. Still, he added, “I don’t have expectations that the fog will clear dramatically between now and October.”

To begin to taper, I have two tests that must be passed: (1) evidence that the labor market has shown improvement, and (2) information about the economy’s forward momentum that makes me confident that labor market improvement will continue in the future. So far, I think we have made progress with respect to these metrics, but have not yet achieved success.

With respect to the first metric, {the} decline in the unemployment rate overstates the degree of improvement.

…

With respect to the second metric, …—confidence that the economic recovery is strong enough to generate sustained labor market improvement—I don’t think we have yet passed that test. The economy has not picked up forward momentum and a 2 percent growth rate—even if sustained—might not be sufficient to generate further improvement in labor market conditions. Moreover, fiscal uncertainties loom very large right now as Congress considers the issues of funding the government and raising the debt limit ceiling. Assuming no change in my assessment of the efficacy and costs associated with the purchase program, I’d like to see economic news that makes me more confident that we will see continued improvement in the labor market. Then I would feel comfortable that the time had come to cut the pace of asset purchases.

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I do believe that we are making progress towards our objectives of maximum sustainable employment in the context of price stability. The economic fundamentals are improving and I expect that the healing process will continue in the coming months and years. At the same time, it is important to recognize that the financial crisis generated significant headwinds that are only slowly abating. We must push against these headwinds forcefully to best achieve our objectives.

Today, I will simply say that I disagreed with the decision of the committee and argued against it. Here is a direct quote from the summation of my intervention at the table during the policy “go round” when Chairman [Ben] Bernanke called on me to speak on whether or not to taper: “Doing nothing at this meeting would increase uncertainty about the future conduct of policy and call the credibility of our communications into question.” I believe that is exactly what has occurred, though I take no pleasure in saying so.

“Costly steps had been taken to begin to prepare markets for an adjustment in the pace of asset purchases,” George said today in a New York speech to the Shadow Open Market Committee, a group of economists that critiques Fed policy. “This week’s decision by the Fed to taper expectations and not bond buying surprised many, disappointed some like me.”

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“Signaling future policy and then failing to follow through could erode the policy intent,” George said. “Asking the markets to trust forward guidance is going to require a great deal of credibility,” she said, referring to the Fed’s strategy to guide expectations about future bond purchases and interest-rate increases.

“That was a borderline decision” after “weaker data came in,” Bullard said today on Bloomberg Television’s “Bloomberg Surveillance” with Tom Keene and Sara Eisen. “The committee came down on the side of, ‘Let’s wait.’”

Bullard called October a “live meeting,” because “it’s possible you could get some data that change the complexion of the outlook and could make the committee be comfortable with a small taper in October.”

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“I’m a little dismayed at those in markets that are saying they’re surprised by this,” Bullard said. The Fed said that, “if the economy was going to improve in the second half of the year, and if we saw that improvement, we would taper.”

... I think it enhanced our credibility in the sense that it showed we really are paying attention to data and not on some automated program to cut QE to zero.