I strongly supported the Federal Reserve's recent action because I believe it will be helpful in strengthening the recovery.  But it is hardly a panacea.  Thus, a fiscal program that combines a focus on pro-growth policies in the near term with concrete steps to reduce longer-term budget deficits could be a valuable complement to our efforts.

There’s a little bit of hysteria out there [among critics of Fed policy].

Indeed, one could readily argue that buying $600 billion of Treasuries is a much more convincing form of communication of the FOMC’s plans than any words could ever be.

 Financial conditions eased notably in anticipation of the Committee's announcement, suggesting that this policy will be effective in promoting recovery. As has been the case with more conventional monetary policy in the past, this policy action will be regularly reviewed in light of the evolving economic outlook and the Committee's assessment of the effects of its policies on the economy.

I believe that QE is a move in the right direction. However, as I have discussed on earlier occasions, I also think there are good reasons to suspect that the ultimate effects of any amount of QE are likely to be relatively modest. That’s why I would have greatly preferred for the committee to have been able to cut its target rate rather than using QE. The problem is that its target rate is already essentially at zero, and so it was not possible to cut the target rate any further.

The Federal Reserve would reduce its planned purchases of $600 billion in Treasuries only after a substantial improvement in the U.S. economy, St. Louis Fed President James Bullard said.

“The economy would have to improve a fair amount before the whole committee would pull back on that,” Bullard said today in an interview on Bloomberg Radio’s “The Hays Advantage,” with Kathleen Hays. “I think that is a possibility, but it would depend on hard data that would force us to reassess where the economy is going in the future.”

Bullard said he favored a rule, similar to the Taylor rule for setting the federal funds rate, that would adapt the level of the Fed’s easing to incoming data on the economy and inflation. He said he didn’t favor setting a $600 billion asset purchase target, preferring a smaller number that would be adjusted at each Fed meeting, although he voted for the policy.

As reported by Bloomberg News

St. Louis Federal Reserve Bank President James Bullard said Wednesday he considers the central bank's planned purchase of $600 billion in U.S. Treasurys as a "form of forward guidance" that can change based on incoming economic data.  However, Bullard suggested the Fed could be doing a better job explaining reasons for the latest stimulus measures.

As reported by Dow Jones News

While such estimates are by nature quite uncertain, we estimate that the impact could be a reduction in the unemployment rate by the end of 2012 of a little less than half a percent. This would translate into more than 700,000 additional jobs that we would not have had in the absence of this monetary policy action.

In additional comments to Bloomberg News, Rosenberg said:

"Given my forecast, I fully anticipate we will purchase the entire amount. Certainly if the economy were to weaken substantially and further disinflation were to occur, we should take more action," and officials could also make "adjustments" if the economy turned out to be much stronger than expected.

Large expansions of the balance sheet can complicate exit strategy, when that becomes appropriate. While the Federal Reserve has a variety of tools designed to tighten policy, either by raising interest on excess reserves, removing reserves, or selling securities, some of these tools have not been used in the past. Naturally this makes the exact impact of various tools somewhat more uncertain than normal. Still, I am very confident of the Fed’s ability and will to exit, when necessary.

I think it's important that we be measured in our expectations about how much further stimulus can accomplish in the current environment. I don't have outsized expectations. I see it as a precaution aimed at reducing or eliminating downsides. Further, in terms of near-term economic activity, I see the additional asset purchases as buttressing the ongoing effects of policies that have already been put in place. I expect it should have some incremental positive effect on overall demand. Also, it should reinforce, and accelerate somewhat, the growth momentum that is currently evident and, in my opinion, counter to some extent the strong headwinds the economy is facing.

According to Bloomberg News: 

Lockhart told reporters after the speech that his "working assumption is that the Fed "will in all probability complete the program in the eight months it's been designed for."

"we will be reviewing it at essentially ever FOMC meeting," he said.  "I wouldn't totally eliminate the possibility that there will be a mid-course change in direction".

You know, I think there's sorta two sort of critiques of the large scale asset purchase program. One, it won't be effective. It doesn't do that much. And-- and we agree with that, that we don't think that this large scale asset purchase program's going to have a huge, powerful effect on-- on the U.S. economy.

And two, I think there's a lotta concern about exit. Once-- when the time comes and the U.S. economy finally does pick up speed and inflation starts to rise, will we-- will we be-- will-- will-- will we be able to exit from this program smoothly without a long term inflation problem? And I think the answer to that second question is really critical. And our answer to that question is very much yes.

I think people do not understand clearly-- and this is partly on us to communicate clearly our ability to manage this when we actually exit -- we can have an enlarged balance sheet and not have an-- a long term inflation problem.

"The purpose of it is not to push down the dollar. This should not be regarded as some sort of chapter in a currency war."

"We have no desire to see inflation higher than the 2%,-or-slightly-below range. We're not doing price level targeting or raising our inflation goal."

"If I were to continue to be concerned about the outlook and thought that further purchases could work, then I would have to seriously consider that step."

Excerpts from a Wall Street Journal interview

[T]he Committee noted that progress toward lower employment has been "disappointingly slow." That observation makes the important distinction that it is not the high level of unemployment alone that motivated the action, but rather the slow pace of improvement and the belief that further monetary stimulus could help.

Monetary policy can surely have great influence--most notably by establishing stable prices and appropriate financial conditions--on the real economy. By my way of thinking, the risk-reward ratio for Fed action peaks in times of crisis when it has a full toolbox and markets are functioning poorly. But when non-traditional tools are needed to loosen policy and markets are functioning more or less normally--even with output and employment below trend--the risk-reward ratio for policy action is decidedly less favorable. In my view, these risks increase with the size of the Federal Reserve's balance sheet. As a result, we cannot and should not be as aggressive as conventional policy rules--cultivated in more benign environments--might judge appropriate.

And overseas--as a consequence of more-expansive U.S. monetary policy and distortions in the international monetary system--we see an increasing tendency by policymakers to intervene in currency markets, administer unilateral measures, institute ad hoc capital controls, and resort to protectionist policies. Extraordinary measures tend to beget extraordinary countermeasures. Second-order effects can have first-order consequences. Heightened tensions in currency and capital markets could result in a more protracted and difficult global recovery. These, too, are developments that the FOMC must monitor carefully.