We will be providing in our minutes and in our survey of economic projections, which will be released in three weeks, will be providing some additional qualitative information about people's -- participants' views of the balance sheet going forward.

The reason that I can't provide all that information now is basically that we received, you know, a whole range of qualitative comments and we had further discussion during the meeting yesterday and today. And so, you know, we need -- we need a little time to -- to summarize that and to have it approved. You know, the minutes, of course, in the MPC are approved by the entire committee. And so in that respect, it will be a definitive statement about what we currently know about -- about the balance sheet.

I can say a few things. I know, you know, one is that it certainly remains -- expanding the balance sheet certainly remains an option, one that we would consider very seriously if -- in particular if progress towards full employment was -- continued or became more inadequate, or if inflation remained exceptionally low.

So we'll continue to look at that. As we say in our statement, we're prepared to take additional measures in general, and that would be certainly one class of measures we would want to consider.

I can make one additional point, which maybe wasn't obvious, which is that, in June, we provided some principles relating the -- the sales of assets, ultimate sales of assets, to the path of interest rates.

And those remain -- those principles remain in force. And so one implication of our extension of our expected point of takeoff to late 2014 is to imply that the initial sales from our balance sheet, which, again, are far down the road, but that begins, that will be later than previously thought. That will be presumably in 2015.

So we do expect to hold our balance sheet at a high level for a longer period.

Additional sales, again -- I'm sorry -- additional purchases remains a topic that we are still debating, and it will depend both on our assessment of the efficacy and risks of that particular tool but also of how the economy's evolving.

Given the high unemployment rate and low job growth, I think it is clear that the Fed has fallen short in achieving its goal of maximum employment.

As for the price stability component of our dual mandate, the majority of FOMC participants—including me—judge that our objective is for overall inflation to average 2 percent over the medium term. With my own view that inflation is likely to run below this rate over the next few years, I believe we will miss on our inflation objective as well.

I think slow progress toward full employment justifies that we continue to consider whether more can or should be done. So for me as a policy maker, as I enter this year, now is not a time to lock into a rigid position.

“We might have to do more,” Evans said today in response to audience questions, referring to whether the Fed should increase accommodation. “We should do more,” Evans said, “even at a cost of slightly higher inflation than most central bankers would like.”

In today's monetary policy environment, it is a lot harder to calibrate exactly how accommodative monetary policy actually is as compared with the norms I am used to from before the financial crisis. While it is true that the federal funds rate has been near zero for some time, some economic policy models indicate that monetary policy should be even more accommodative than it is today. And this is true even after accounting for the large scale asset programs the FOMC has initiated to compensate for the fact that the federal funds rate cannot go below zero.

I have supported our policy decisions, and there is evidence that they have been effective.

Williams told reporters that given his forecast for lower inflation than predicted by private forecasters, “there’s a strong argument for buying more mortgage-backed securities.” That suggests a need for policy that is “more stimulative.”

Speaking for myself only, steady even if unspectacular growth accompanied by inflation in the neighborhood of 2 percent justifies some reluctance to change, in either direction, the FOMC's accommodative policy. At the same time, I think slow progress toward full employment justifies continuing consideration of whether more can and should be done. So for me as a policymaker, now is not a time to lock into a rigid position.

In my judgment, our deployment of unconventional policy tools has been completely appropriate to help promote the Federal Reserve's statutory mandate of maximum employment and price stability. Ideally, monetary policy decisions would be informed by precise quantitative information about the effects of each tool. We do our best in this regard, and I can certainly attest that the FOMC reviews an enormous amount of information and analysis in reaching its decisions. That said, even in normal times, uncertainty is intrinsic to real-world monetary policymaking. Uncertainty about the effects of policy is particularly relevant under current circumstances where the scope for conventional monetary policy is constrained by the zero lower bound on the federal funds rate, leaving unconventional tools as the only means of providing further monetary accommodation.

I expect continued moderate recovery in 2012. My forecast is for the unemployment rate to gradually (and perhaps fitfully) move lower and for inflation to settle over coming quarters at or below levels consistent with the Federal Reserve's dual mandate. In this environment, I believe that the current stance of monetary policy is appropriate.

Further purchases of mortgage-backed securities would in my view help provide a more rapid recovery in housing, by reducing the costs of refinancing or purchasing new homes. Of course, these Fed actions would be even more effective if accompanied by fiscal policies designed to speed the recovery in housing.

My reluctance to support greater monetary accommodation has been based on efficacy.

As I weigh the evidence, I find the case for the liquidity trap scenario more compelling than one for the structural impediments scenario. My assessment has been influenced by the book titled This Time Is Different: Eight Centuries of Financial Folly[3] by Carmen Reinhart and Kenneth Rogoff. Reinhart and Rogoff document the substantially detrimental effects that financial crises typically impose on the subsequent economic recovery. As we all know, the recent recession was accompanied by a large financial crisis. When I look at the U.S. economy today, I see it tracking Reinhart and Rogoff’s observation that such recoveries are usually painfully slow — and are so for reasons that have little to do with structural impediments in the labor market and the like.

Liquidity traps are rare and difficult events to manage. They present a clear and present danger that we risk repeating the experience of the U.S. in the 1930s or that of Japan over the past 20 years. However, liquidity traps have been studied over the years in rigorous analytical models by a number of prominent economists, including Paul Krugman, Gauti Eggertsson, Michael Woodford and Ivan Werning.[4] Variants of these models have successfully explained business cycle developments in the United States. The lesson drawn from this literature is that the performance of economies stuck in a liquidity trap can be vastly improved by lowering real interest rates and lifting economic activity using an appropriately prolonged and forward-looking period of accommodative monetary policy. Of course, such monetary accommodation is the antithesis of the policy prescription for the structural impediments scenario.

“The data have come in stronger than expected, so I think the logical thing now is to wait and see,” Bullard said in an interview in New York today at the Bloomberg Hedge Fund Conference.  “See if we continue to get a good read on the holiday season and start out the New Year stronger or weaker, and also assess the situation in Europe and see how that feeds back to the United States.”

Fiscal policy actions that reduce uncertainty and stimulate recovery are badly needed.  What would be especially helpful at this juncture are fiscal policy actions that work in tandem with monetary policy to stimulate the economy.  One example of such a policy is the recently announced U.S. government initiative to make it easier for underwater homeowners to take advantage of very low rates and refinance their mortgages.  This will trim monthly payments for some households and could reduce foreclosure rates.  And it could also eventually provide a modest boost to consumer spending.  Other actions that address the continuing problems in the housing market could help spur recovery and enhance the effectiveness of monetary policy as well. 

At this time my notion of "appropriate monetary policy" is one of holding steady the current policy rate (federal funds rate) of zero to 25 basis points and the balance sheet steady at current scale. I supported efforts to put pressure on longer-term interest rates for the modest additional stimulus that might produce. That said, I am skeptical that further asset purchases will produce much gain in terms of increased economic activity. I don't believe further bond purchasing by the Fed is a potent policy option given the set of circumstances we currently face. But that is not to say that such a policy action would not be powerful and appropriate in other circumstances, and I don't think any option should be taken off the table.