“From a policy perspective, the assumption that a central bank can always and everywhere credibly commit to its policy rule is, I believe, also questionable,” Plosser said at a conference sponsored by Germany’s Bundesbank and the Philadelphia Fed.

“In practice, I seek ways to make policy more systematic and more credible,” Plosser said. Still, “commitment is a luxury few central bankers ever actually have, and fewer still faithfully follow.”

By providing monetary accommodation, we’re saying, in essence, Congress, you better eat your vegetables, or we’ll serve you a big plate of monetary cookies.

I recently heard the analogy of a clogged drain in a kitchen sink. The speaker posed the question of whether the Fed should push on the blockage by running the water more intensely or instead put on a rubber glove, reach down, and pull the stuff out. Even the normally technical discussions of monetary policy can have a "yuck" factor from time to time.

When the Fed engages in targeted credit programs that seek to alter the allocation of credit across markets, I believe it is engaging in fiscal policy and has breached the traditional boundaries established between the fiscal authorities and the central bank. Indeed, some of these actions have generated pointed criticisms of the Fed.

Housing is a major factor in the deep downturn and sluggish recovery we’ve experienced in recent years. It’s not the only headwind. But it’s one of several factors weighing on aggregate spending by consumers, businesses, and government. An aggregate-demand shortfall is something monetary policy can be, should be, and is addressing.

In the longer term the overall effect on bank profitability of an appropriately accommodative monetary policy is almost certainly positive.

Monetary policy is sometimes criticized for such “go-stop” policies. Policymakers step on the accelerator aggressively, only to slam on the brakes in order to change course. Such an approach to policy can be highly destabilizing, creating added volatility for financial markets and the economy... It is an approach most often driven by an excessive focus on the short run and perhaps some hubris that we will be able to successfully avert the risks such a strategy poses for the economy over the longer run.

[B]ecause the outlook for unemployment is unacceptably high relative to our dual mandate and the outlook for inflation is moderate, I believe it is also appropriate to continue to evaluate whether we could provide additional accommodation in a manner that produces more benefits than costs, regardless of whether action in housing is undertaken or not.

“Make no mistake -- the Federal Reserve doesn’t have a magic wand that will allow the economy to get through a crisis of this magnitude unscathed,” the regional bank chief said in the text of a speech in Salt Lake City. “A federal default must be avoided,” he said.

I suspect that as we’ve done in the past we will look to the central bank of the United States and the world’s central banks to inflate our way out of this because it’s so much easier.

If I judged—or if evidence suggested—that a zero rate would solve our country’s unemployment problem or speed up the recovery without causing other adverse consequences, I would support it. However, monetary policy is not a tool that can solve every problem.

While many observers see food and energy prices rising and assume the Fed should tighten policy – raise the cost of money and credit – to head off inflation, I would suggest taking a step back and recognizing that tighter U.S. monetary policy will do nothing to stabilize Libyan oil production, reduce uncertainty about political stability in the rest of the Middle East, or increase the wheat harvest in Russia.

In fact, tightening monetary policy solely in response to contractionary supply shocks would likely make the impact of the shocks worse for households and businesses.

I’ve argued that even if the fiscal authority borrows exclusively in its country’s own currency, the central bank can have a large amount of control over the price level. But the central bank can only achieve that control if it is willing to commit to letting the fiscal authority default. Such a commitment may expose the country to risks of short-term and medium-term output losses. How this trade-off should best be resolved awaits future research. But I suspect that it may be optimal for central banks to guarantee fiscal authority debts in some situations. If so, we again have to think of price level determination as something that is done jointly by the fiscal authority and the central bank.

[The Fed] “opened the floodgates” and “it worked,” the regional bank chief, who votes on monetary policy this year, said during a speech today in Dallas. “We re- liquefied the economy. In my opinion, we might have done too much."

Some fear that the strong rise in commodity and energy prices will lead to a more general sustained inflation. Yet, at the end of the day, such price shocks don’t create sustained inflation, monetary policy does.