From November 2010 through July 201431 consecutive meetingsthe FOMC was in a position to state that longer-term inflation expectations remain stable. Because of the decline in market-based measures of longer-term inflation expectations in the past few months, the Committee has not been able to make this assertion in the past three FOMC statements.

Despite these facts, the FOMC communicated its intention after this weeks meeting to continue gradually removing monetary accommodation. In my assessment, the FOMCs failure to respond to weak inflation runs the risk of creating a harmful downward slide in inflation and longer-term inflation expectations of the kind that we have seen in Japan and Europe. I see this risk to the credibility of the inflation target as unacceptable, given how hard it would be for the FOMC to respond successfully if this eventuality did indeed materialize.

Federal Reserve Bank of St. Louis President James Bullard dissented with the Federal Open Market Committee decision announced on June 19, 2013.  In his view, the Committee should have more strongly signaled its willingness to defend its inflation target of 2 percent in light of recent low inflation readings...

President Bullard also felt that the Committee’s decision to authorize the Chairman to lay out a more elaborate plan for reducing the pace of asset purchases was inappropriately timed.  The Committee was, through the Summary of Economic Projections process, marking down its assessment of both real GDP growth and inflation for 2013, and yet simultaneously announcing that less accommodative policy may be in store.  President Bullard felt that a more prudent approach would be to wait for more tangible signs that the economy was strengthening and that inflation was on a path to return toward target before making such an announcement.

In addition, President Bullard felt that the Committee’s decision to authorize the Chairman to make an announcement of an approximate timeline for reducing the pace of asset purchases to zero was a step away from state-contingent monetary policy...

We’re at the limits of our understanding of how monetary policy affects the economy… Sometimes when you test the limits you find out where the limits are by breaking through and going too far.

I dissented from these Committee actions and have expressed my concerns at length elsewhere. Briefly, as I’ve touched on today, I think that further monetary stimulus is unlikely to materially increase the pace of economic expansion, and that these actions will test the limits of our credibility. At some point, we will need to withdraw stimulus by raising interest rates and reducing the size of our balance sheet, and the larger our balance sheet, the more vulnerable we will be to seemingly minor miscalibrations in policy. Accordingly, I see an increased risk, given the course the Committee has set, that inflation pressures emerge and are not thwarted in a timely way.

In my view, the supply of bank reserves is already large enough to support the economic recovery, and the benefits of further asset purchases are unlikely to be sizeable. The effects on longer-term interest rates are uncertain and likely quite small, and the potential to boost job creation seems quite limited, given the fundamental impediments that appear to be restraining growth now. At the same time, it’s important to recognize the potential costs of additional asset purchases. A larger Fed balance sheet will increase the risks associated with the timely and appropriate withdrawing of monetary stimulus by raising interest rates and selling assets.

My assessment was that the costs associated with additional asset purchases outweighed the expected benefits, and thus, I dissented.

"It should be pretty clear that this committee is straining to provide as much stimulus as possible without endangering our price-stability credibility,” Lacker told CNBC in an interview. “My worry, and the reason I dissented on this and the asset purchases, is that we seem to be willing to test the very limits of that credibility."

The Committee’s statement also altered the “forward guidance” regarding future monetary policy, stating for the first time that it expected a highly accommodative stance of monetary policy for “a considerable period after the economic recovery strengthens.” I disagreed with this statement because I believe a commitment to provide stimulus beyond the point at which the recovery strengthens and growth increases implies too great a willingness to tolerate higher inflation and would be inconsistent with a balanced approach to the FOMC’s price stability and maximum employment mandates.

Finally, I strongly opposed purchasing additional agency mortgage-backed securities. These purchases are intended to reduce borrowing rates for conforming home mortgages. Such purchases, as compared to purchases of an equivalent amount of U.S. Treasury securities, distort investment allocations and raise interest rates for other borrowers. Channeling the flow of credit to particular economic sectors is an inappropriate role for the Federal Reserve. Central banks abuse their independence when they promote some borrowers at the expense of others. This principle was recognized in the Joint Statement of the Department of Treasury and the Federal Reserve on March 23, 2009: “Government decisions to influence the allocation of credit are the province of the fiscal authorities,” that is, Congress and the administration.

 Like many private sector forecasters, the FOMC has overestimated the strength of the recovery over the past two years. Some have suggested that the unexpected slowness of the recovery is a justification for the FOMC’s increasing the level of monetary accommodation over the past couple of months. But I disagree with this argument. I’ve just described why the FOMC should respond to improvements in economic conditions and outlook with a reduction in the level of monetary accommodation. Logically, if the economy recovers much more slowly than expected, then the FOMC should respond by reducing the level of monetary accommodation much more slowly than expected. The FOMC should only increase accommodation if the economy’s performance and outlook, relative to the dual mandate, actually worsens over time.

I dissented from these decisions because I believe that they will do little to improve the near-term prospects for economic growth or employment and they do pose risks. Policy actions should never be considered free and should be evaluated based on the costs and benefits. Based on our experience with Operation Twist in the 1960s and with last year’s QE2, the reduction in long-term rates is likely to be less than 20 basis points for the 10-year Treasury yield, which is currently only 2 percent. The pass-through to the rates at which consumers and businesses actually borrow is likely to be much less. Thus, I am skeptical that this will do much to spur businesses to hire or consumers to spend, given the ongoing structural adjustments occurring in the economy and the uncertainties posed by the fiscal challenges both here and abroad.

In a speech last week in Bismarck, I said that I believe that any additional provision of accommodation in September or thereafter will have to be judged on its own merits. Some readers or listeners may have found this statement to be imprecise. So, let me elaborate on what I meant then, and continue to believe. I assess FOMC actions in light of the incoming data and the Committee’s communicated objective of keeping inflation at 2 percent or a bit under. With that in mind, the data in August did not justify the additional accommodation provided at that meeting. It is unlikely that the data in September will warrant adding still more accommodation.

I dissented from this change in language because the evolution of macroeconomic data did not reflect a need to make monetary policy more accommodative than in November 2010. In particular, personal consumption expenditure (PCE) inflation rose notably in the first half of 2011, whether or not one includes food and energy. At the same time, while unemployment does remain disturbingly high, it has fallen since November.

I can summarize my reasoning as follows. I believe that in November, the Committee judiciously chose a level of accommodation that was well calibrated for the prevailing economic conditions. Since November, inflation has risen and unemployment has fallen. I do not believe that providing more accommodation—easing monetary policy—is the appropriate response to these changes in the economy.

Going forward, my votes on monetary policy will continue to be based on the evolution of the data on PCE inflation and its components, medium-term PCE inflation expectations, and unemployment.

The entire FOMC knows the history and the ruinous fate that is meted out to countries whose central banks take to regularly monetizing government debt. Barring some unexpected shock to the economy or financial system, I think we are pushing the envelope with the current round of Treasury purchases. I would be very wary of expanding our balance sheet further; indeed, given current economic and financial conditions, it is hard for me to envision a scenario where I would not use my voting position this year to formally dissent should the FOMC recommend another tranche of monetary accommodation. And I expect I will be at the forefront of the effort to trim back our Treasury holdings and tighten policy at the earliest sign that inflationary pressures are moving beyond the commodity markets and into the general price stream. I am a veteran of the Carter administration and know how easily prices can spin out of control and how cruelly markets can exact their revenge. I would not want to relive that experience.

I believe that moving rates modestly off of zero, where they have been since December 2008, still represents highly accommodative monetary policy... More importantly, such action is necessary if we are to ensure a more stable economy.

Personally, for me to change course, given that I stopped (supporting rate cuts) at 3 1/2 percent, I'd have to see a very dramatic economic slowdown going on beyond what I'm already discounting.

I'm already discounting significant anemia,

Personally, I"m concerned about inflation and the negative feedback loop, which is that inflation leads to changes in consumption and business patterns that further retard economic growth as well as to pressures in the foreign exchange markets.

So I think there is a risk of a negative feedback loop that derives from cutting rates. So that's one of the reasons I've been resistant.