“I believe that undoing this commitment in the near term would undercut the ability of the Committee to offer similar conditional commitments in the future -- and this ability has certainly proved very useful in the past three years,” Kocherlakota said today, according to prepared remarks for a speech in Bismarck, North Dakota. “I plan to abide by the August 2011 commitment in thinking about my own future decisions. Of course, the case for any additional easing would have to be made on its own merits.”

Kocherlakota changed his mind by October.

“With my diminished outlook for economic growth, and my outlook for inflation to soon fall back to 2 percent, I was in favor of providing additional support to the recovery at last week’s FOMC meeting,” Pianalto said today in a speech in Columbus, Ohio.

“Under the circumstances, I think it made sense to take the unprecedented step of including that conditional guidance in our press statement,”

A very downbeat description of the economy would not do much to engender confidence in the business community or the consumer community. And I was worried that we were playing into that.

But I was also concerned that the action that was taken, which was to change the extended period language to a date, was poorly designed and was inappropriate. Policy should not be dependent on the calendar. It should be depending on the economy.

“Policy should be set according to the state of the economy, not according to the calendar,” Bullard said. “I didn’t like putting calendar dates in.”

Many have read the FOMC statement as virtually guaranteeing that the Fed will hold the funds rate near zero for at least another two years, but Lacker said that is not a valid interpretation. “I would note that it’s a fairly mild statement in the sense that it’s highly contingent,” he said... “I think that if the economic data come in differently than the Committee expected then I think that will provide the opportunity to alter the terms of that statement.” 

 “That statement isn’t so much a commitment as it is a forecast,” he added.

...

Lacker said his main objection to the extended zero rate policy is directed elsewhere: “For me predominantly, it’s a matter of money creation and inflation.”

 “We operate monetary policy by moving short-term interest rates around over the business cycle,” he explained. “We do that because what’s required to get the money supply right, to keep inflation low and stable, a lower interest rate is required when the economy is soft, and a higher interest rate is required when the economy is strong.” “If we get the interest rate wrong we’re going to get the money supply wrong, and that’s going to get inflation wrong,” he continued. “And that’s why we vary interest rates with economic conditions the way we do. People confuse that with providing stimulus and working to offset shocks to growth, positive or negative.” 

 “So for me the chief risk is that it creates the ingredients for an acceleration of inflation.”