WSJ: Some people have raised the idea maybe you signal it in September and then wait until October to act. Do you want to get into this pattern of signaling, waiting and then moving?

LOCKHART: I am one who very strongly would like to avoid unnecessary market volatility around the announcement of liftoff. But we have put a stake on the grounds that we are going to make a decision based on the data. It is data-dependent. That makes it much more difficult to signal because that suggests that the data, right up to the meeting, all is taken into consideration. That makes it difficult to make a decision a meeting in advance and then somehow signal it. You can make small gestures of signal. I would say that the inclusion of the word “some” in our statement is that kind of small indication of leaning in a particular direction without completely signaling certitude or eliminating any optionality.

WSJ: Tell me about that word “some.” Did you all spend a lot of time talking about that four-letter word?

LOCKHART: Some time. Since it was a change from the previous statement there had to be discussion of whether people wanted it in or didn’t want it in. There was some time devoted to discussing it. I interpreted it as meaning a bit more or a little bit more. That is a qualifier that conveys to the public that we’re getting closer.

Asked about this terminology, Mr. Powell said: "I think patience is the appropriate term." He said low inflation gives the Fed some timedespite the transient effects of cheaper oiland the ability to be patient.

Mr. Plosser repeated in his interview his long-held belief that the course of economic data suggests the Fed should be raising rates now, or very soon. Mr. Plosser also said the Feds new commitment to be patient when it comes to the timing of rate increases was a bad idea that complicates the central banks other commitment to change rates in reaction to incoming data.

WSJ: Were all a little consumed right now with the word patient in the policy statement, which Im sure really pleases you. What will it mean when the Fed removes patient from its statement?

PLOSSER: It could mean different things to different people. The chair has articulated what she means. I think it is fair to say that once the committee chooses to remove patient that they are making a different statement about the likelihood and timing of rate increases. More precisely what that means, it will depend on economic conditions. We would save ourselves a lot of headaches and you guys writing a lot of words if we didnt use (words like patient). Ive been only marginally successful in reducing our efforts to do that.

I think the momentum evident in the second half of 2014 will carry over into 2015, and the ongoing outlook will remain solid.

If that is indeed the case, I believe the first action to raise interest rates will in all likelihood be justified by the middle of the year.

The phrase "middle of the year" is admittedly not very precise. That's purposeful on my part. Understandably, some financial market participants are fixated on what exact month the first move will occur. Perhaps it's easy for me to say, but I don't think the exact timing of liftoff is the most important concern. A couple of years hence, whether the first rate increase came at a particular meeting or anotherwhether a bit earlier or later than expectedisn't going to make a great deal of difference for the real, Main Street economy.

The key liftoff decision criteria ought to be closely linked to the FOMC's two principal policy objectivesmaximum employment and low and stable inflation. In my view, the biggest factor influencing the actual timing of a liftoff decision should be the Committee's confidence that these objectives will be achieved in an acceptable timeframe and, especially, that inflation will move at deliberate speed toward the target of 2 percent per annum.
...
It's quite possible there will be considerable ambiguity in the picture presented by data in the first half of the year. Beyond the noise in inflation numbers, it's obvious there is simply a lot moving around at this timeoil prices, the dollar, even quarterly growth numbers, in all likelihood.

Noisy, jumpy data affect my confidence in the outlook. I'm likely to decide what policy decision to support based on where I think things are headed. When the numbers come in noisy, it's just harder.

If the early months of this year bring mixed news on the economy, the risk manager in me will lean to preferring a later date for the first policy move to an earlier one. That said, after six years of recovery and considering all that that has both transpired and been accomplished, I don't think we policymakers should get too rigid about liftoff a little earlier or later. My preferred timing may not be the Committee's consensus decision.
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At the recent meeting of the FOMC in December, the Committee made an adjustment of its forward guidance by introducing the theme of patience in beginning to normalize the stance of policy. I supported and expect to continue to support a patient approach, one that is relatively cautious and conservative as regards the pace of normalization of rates.

As progress in achieving maximum employment and 2 percent inflation continues, at some point it will become appropriate to begin reducing policy accommodation. But based on its current outlook, the committee judges that it can be patient in doing so. In particular, the committee considers it unlikely to begin the normalization process for at least the next couple of meetings.

By the time of liftoff, participants expect to see some further decline in the unemployment rate and additional improvement in labor market conditions.

They also expect core inflation to be running near current levels but foresee being reasonably confident in their expectation that inflation will move back toward our 2-percent longer-run inflation objective over time.

I think appropriate monetary policy would keep the funds rate where it is until the first quarter of 2016. Considerable time seems to describe that perfectly fine. I dont feel its important to change the publics thinking on that, so I dont see a need to change {the language}.

During the unusual economic circumstances of the past six years, the FOMC has provided forward guidance to help the public better understand the anticipated future path of interest rates. The formulation of the forward guidance has changed over time, from qualitative guidance, to calendar dates, to economic thresholds, and to a blend of state-contingent and date-based guidance. Lets walk through those changes.

In December 2008, the FOMC began with qualitative guidance indicating that it anticipated that weak economic conditions were likely to warrant exceptionally low levels of the fed funds rate for some time. In March 2009, some time became extended period. In August 2011, the FOMC changed its qualitative forward guidance to a calendar date when it said that it anticipated an exceptionally low fed funds rate at least through mid-2013. That date was later extended to late 2014, and then to mid-2015.

The FOMC changed the formulation of its forward guidance from calendar dates to thresholds in December 2012. The Committee said that it anticipated that the 0-to- percent target range for the fed funds rate would be appropriate at least as long as the unemployment rate remained above 6 percent, inflation between one and two years ahead was projected to be no more than a half percentage point above the Committees 2 percent longer-run goal, and longer-term inflation expectations continued to be well anchored.

A year later, in December 2013, the FOMC blended state-contingent forward guidance with an element of calendar-date forward guidance. First, the FOMC indicated that in determining how long to maintain highly accommodative monetary policy, it would consider information in addition to the unemployment rate and PCE inflation, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The FOMC then translated this into time, saying that based on its assessment of these factors, the 0-to- percent target range for the funds rate would likely be appropriate well past the time that the unemployment rate declines below 6 percent, especially if projected inflation continues to run below the Committees 2 percent longer-run goal.

In March of this year, the thresholds were replaced with guidance that linked the path of policy to the Committees assessment of both realized and expected progress toward its dual-mandate objectives. The guidance continued to provide a time element by indicating that based on the FOMCs assessment, the funds rate target will likely remain 0-to- percent for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

I note that the recent business cycle was not the first time the FOMC has used forward guidance. In August 2003, in the midst of elevated perceived risks of deflation, the Committee indicated that it believed policy accommodation could be maintained for a considerable period. As deflation risks eased and economic conditions changed during that cycle, the forward guidance evolved as well, eventually indicating that the FOMC would be firming policy.

 I think the committee participants who have spoken out on this topic {i.e., who objected to the calendar-based nature of teh "considerable time" guidance} recently want to make sure that we have the flexibility, that the committee has the flexibility to respond to unfolding developments. They want to make sure that if progress really does turn out to be faster than we would expect, that the committee will be in a position to start sooner tightening monetary policy.

They do not want to be locked into something that the markets see as a calendar-based and firm commitment, and so they want to emphasize data dependence of our policy and make sure that we have appropriate flexibility.

But I agree with that.  As I said earlier, I think we do have any mechanical interpretation  that applies to this.  It, of course, gives an impression about what we think will be appropirate, but there is no mechanical interpretatin.

I've said repeatedly -- and I want to say again -- that if events surprise us, and we're moving more quickly toward our objectives, and the committee sees a need to move sooner or later, depending on what the data is, that we do feel -- I do feel we have the flexibility to move. And it is important for markets to understand that there is uncertainty and that the statement is not some sort of firm promise about a particular amount of time.

A noted hawk on the Fed's largely dovish board, Plosser said he believes interest rates should hit 3 percent by the end of 2015 and 4 percent in 2016.

"It's a little bit puzzling that the market would react the way it did," Plosser said on CNBC's "Squawk Box." "I don't think the Fed changed its position. In fact, it tried to say very explicitly in its statement that we believe forward guidance or the expectations have not changed as far as we're concerned."

Yellen later clarified her comments on interest rates, which she said may rise six months after the Fed ends its bond-buying stimulus programs, Plosser said…

Still, Plosser told CNBC it's more productive to talk about economic conditions rather than timing. He said Yellen's comments were in line with data and surveys that the Federal Open Market Committee used to measure the economy.

"There was a lot of evidence and a lot of surveys that suggest six months wasn't a wildly unexpected timeframe," Plosser said. "But it is better to get away from talking about timeframes. Talking about economic conditions is a much better way to think about it."

Plosser added: "I was surprised the market reacted as much as it did ... I don't count months. It's silly for us to contemplate raising rates until we stop purchases."

Federal Reserve Bank of St. Louis President James Bullard defended Janet Yellen’s comments on interest-rate increases, saying her outlook is in line with private surveys on when the central bank might start tightening policy.

Treasury yields jumped March 19 after Yellen said in her first press conference as Fed chair that rates could rise “around six months” after asset purchases end, most likely in the fall.

Bullard, speaking in Washington today, said “the surveys that I had seen from the private sector had that kind of number penciled in as far as I knew.”

“That wasn’t very different from what we had heard from financial markets, so I think she’s just repeating that as that time period,” Bullard said at a roundtable at the Brookings Institution. Bullard doesn’t vote on policy this year

The language that we use in this statement is “considerable period”. So, I -- I, you know, this is the kind of term it's hard to define, but, you know, it probably means something on the order of around six months or that type of thing. But, you know, it depends -- what the statement is saying is it depends what conditions are like.

We need to see where the labor market is, how close are we to our full employment goal. That will be a complicated assessment, not just based on a single statistic. And how rapidly are we moving toward it? Are we really close and moving fast? Or are we getting closer, but moving very slowly?

And then what this statement emphasizes, and this is the same language we used in December and January, we use the language especially if inflation is running below our 2 percent objective. Inflation matters here, too. And our general principle tries to capture that notion.

If we have a substantial shortfall in inflation, if inflation is persistently running below our 2 percent objective, that is a very good reason to hold the funds rate at its present range for longer.

GREG IP:   Could you put some numbers on what -- on the meaning of exceptionally low federal funds rate? For example, would a 1 percent federal funds rate qualify as exceptionally low at the end of 2014?

 BERNANKE: Exceptionally low -- you know, one of the reasons that the language in the statement is sometimes a little vaguer than you would like, is because we're trying to get a consensus among 17 -- or at least 10 people -- and different members or participants in the FOMC might have somewhat different views of what exceptionally low means.

Personally, I think it means something close to where we are now.

My view was that we should change the language. I didn't object on the fact that interest rates were low at this time, but I think policymakers need to have the broadest options possible and the language that we use, that is very low for an extended period, was appropriate during the height of the crisis to assure that we were not going to make any changes, but now the economy is beginning to recover. It has been in recovery now for two quarters. We have to be thinking a little bit longer ahead and that's really what my admonition was.

In response to a question about his dissenting vote against the "extended period" clause in the January FOMC statement.

[W]e said we would keep short term rates low, exceptionally low for an extended period.  So until we change that, that’s where we are. Short term rates are going to stay low for a considerable period of time to come... among my very informal set of people that I asked that question they said that “extended” in their minds means at least six months... So what I want to stress is extended means at least six months. It could be a year from now… two years from now. It’s going depend on how the economy develops.