STEVE LIESMAN: Let's talk about these interest rate forecasts that you're now publishing. There seems to be a lot of-- there's some disagreement between the statement which says that you expect it to remain-- low through mid-- through late 2014 and the forecast that came out later in the day. Which should the markets believe?

CHARLES PLOSSER: Well, I think two things. One is that interest rate projections in the SEP are not forecasts, people have to remember that they are projections of what each individual committee member thinks is appropriate policy, that is what should policy be, not what will policy be. And so they're making individual assumptions about the path of policy. And that reflects how over time that will reflect how policy evolves and the views of how the committee evolves.

In terms of the statement, the statement is a statement of policy, a statement by the committee. And it's reinforced by a vote of the FOMC. There's information content in both of those. If you look at the SEP projections of interest rates in the policy decisions you will see that there's a huge mass of people in and around 2014 and some beyond and some people sooner.

So it's not clear that the statement didn't reflect the modal view of what the committee and participants thought. But they are different exercises and so I think it's very important we understand the differences in our projections and the policy statement.

STEVE LIESMAN: If you watched the way the market reacted, they thought great at 12:30 when you said you expected it to remain low through 2014. But then we learned at 2:00 that there's not very much support for that later date on the board. Which is the right one?

CHARLES PLOSSER: Well, I think the fact of the matter is the statement's pretty clear although not as clear as it could be, that this is two-thousand-- late 2014 is contingent, it is conditional on the evolutions of the economy. Now, I think that we don't make that clear enough.

A lot of people have been reading the statement as if it was a commitment and it is not a commitment. And when you look at the SEP projections you-- it's pretty clear that everybody doesn't agree that this is a firm commitment. So it's not a commitment and it shouldn't be interpreted as a commitment. It's a conditional statement and I think revealing the projections in the SEP makes that even clearer that this is really not a commitment.

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STEVE LIESMAN: So Charlie, let's go back over this idea. If there's a conflict, and there was, but if there's a conflict between this policy statement of the calendar date and the SEP which one prevails?

CHARLES PLOSSER: Well, it's not clear that you want one dominate the other. One, the SEP projections are in fact the range of views of the committee. If you look at the policy statement of late 2014 and you looked at the modal value of the range of views it was probably pretty close. The idea is for them not to be.

You would think that the range of views would be captured in... I think having a calendar date in the statement is bad policy, I've said that over and over again. And by getting rid of the calendar date in the policy statement-- because I think it's bad communication, I think the SEP projections speak for themselves, they give you the view about where people currently stand.

What's important about that is that you will see over time when the next quarter comes and we do another SEP projections and you have the appropriate policy rates in there, you may very well see that change. It may go out further or it may actually begin to pull in. That's really a more informative way to think about forward guidance as we call it, from my perspective.

We don't identify the specific individuals who provide the projections. Among other reasons, we want to make sure the people come to the meeting willing to talk and not wedded to a specific position.

And that's why, again, the committee makes a collective decision after using as input these projections, which are circulated to all the members of the committee before the meeting so that they can see what their colleagues -- colleagues believe.

As far as what individual members do believe, we certainly have other vehicles for expressing our views. All of us give speeches, all of us give interviews, and are -- you know, I -- I give frequent testimony. So there's plenty of opportunities to get a sense of what individual members believe.

But, again, we felt that this -- this -- this information, which prevents -- presents both the diversity of views on the committee, but also shows you where the central tendencies lie, would be useful.

And I guess I might add to that, you know, the chairman's term is not infinite. At some point there'll be a new chairman. But there's a lot more continuity on the FOMC collectively. The average bank president is -- is on the FOMC for as much as 10 years and governors' terms are 14 years. So even as the chairman changes, much of the FOMC remains continuous.

So as we talk about interest rates in 2014, the fact that there is quite wide-ranging agreement that interest rates will be low for a long time should give you more confidence that that's not dependent on a single individual.

In response to a question about whether the Chairman's forecast carries more weight than others. 

It's going to depend on your forecast for that. So it's difficult to argue against futures markets that have a certain view built in that energy prices are going to, crude oil, for example, is going to be flatter down from here. But they've been wrong before, and there's a huge band of uncertainty around that central tendency of a forecast. So I think the most likely outcome is moderation in headline inflation over the next half year or year. Core inflation likely to rise to 2.5 percent or so. And I think it will moderate after that.

In about a week we'll have a new set of {quarterly FOMC} projections. And it will show lower projections of growth, and they'll be reasonably consistent with what we're seeing with private forecasters and so on. They do show, as I suggested in my testimony, that growth looks to be weak but still positive during the first half of the year, and with some expectation of strengthening later in the year.

There are two cases in which the economic news will pretty clearly predict a change in the Fed’s policy stance. If incoming economic indicators show that both output and inflation are rising above {the FOMC's central tendency} forecasts, then in the absence of any other information we can expect that the FOMC will increase its target fed funds rate. On the other hand, if both output and inflation come in weaker than expected, we are unlikely to see further increases in the federal funds target; indeed, if economic weakness is pervasive enough the FOMC will at some point reduce the target funds rate.

The step I have in mind would have the FOMC provide an additional three- to five-year projection for inflation. This would be based on the participants' working definitions of price stability and policies that support them. The ranges and central tendencies of these extended projections would be made public, perhaps in an expanded discussion in the Monetary Policy Report. I would not be surprised to discover that the extended three- to five-year inflation projections of the individual FOMC participants converge to a fairly narrow range. This convergence could provide the foundation for a more formal inflation objective at some point in the future.

I’ll refer to this forecast as the “FOMC members forecast.” The forecast reflects a survey of FOMC members, but is not an FOMC forecast per se because the Committee does not debate and vote on the forecast to make it a Committee forecast as such. Nor is it the Board of Governors staff forecast prepared for each FOMC meeting and reproduced in the Greenbook; the Greenbook is released with the FOMC meeting transcript only after a five-year lag.

I would suggest one other change. One of the key parts in the report is the summary of the individual projections we provide, which are encapsulated in the central tendency projections in the report. To clarify those, it would be helpful if we all made them contingent on a uniform assumption of no change in policy. That would in a sense put us all on the same page and eliminate any ambiguity or confusion or lack of clarity that might result from the fact that different members of the Committee may be using different policy assumptions in generating their own individual forecasts. It seems to me one of the advantages of that would be that it would help to signal the undesirable consequences of not taking policy actions in one direction or the other that we need to take. It might put us in a position to be more proactive in presenting our policy stance and perhaps less defensive in public discussions of monetary policy. I believe that is the procedure the Bank of England uses in its current reporting approach. That is another suggestion I think we ought to look at.