A higher interest rate under current conditions is also consistent with the way the FOMC has responded to economic conditions and inflation over the last few decades. This historical pattern of behavior has conditioned public beliefs about how the FOMC is likely to behave in the future, and it has been an essential foundation for the monetary stability we currently enjoy. Further delay would be a departure from a pattern of behavior that has served us well in the past. The historical record strongly suggests that such departures are risky and raise the likelihood of adverse outcomes.

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.

First, the actual pace is going to be dependent on the path of the economy. The chair has been clear, and I certainly agree, that it is not our intention, is not my intention, to fall into a pace of mechanical increases at predictable intervals.

That happened for, I guess, 17 consecutive meetings of 25 basis point increases in the last tightening cycle. It’s not our intention to repeat that, but rather to be more responsive to incoming data.

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[I]t depends on the data and I would say, you know, my own forecast calls for liftoff in September and for an additional increase in December.

I would want to stress that, as I said, I think September liftoff for me is close to a coin flip. It depends on the data. It will depend on how labor market data, growth data, inflation data, global events unfold. And December is even more, you know, even more uncertain given where we are.

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So, markets have been doing that {pricing in a more gradualist path than implied by the dot plot} for a while. The market has been pricing at a lower path and continues to do so, although I think we’re getting into closer alignment. I assume that we will get into pretty close alignment by the time of lift-off. We’re trying to be as transparent as possible about how we’re thinking about interest rates and the economy in all the factors we consider.

There’s so much attention paid to this I think it’s unlikely the FOMC would reach a point of seriously considering a rate increase, and that that wouldn’t be widely understood in the markets. And certainly, it is our design is to be as transparent as possible. That’s the part of it that we control. We have to make these decisions, and, you know, we control our communication and our transparency, and I think we’re in a pretty good place on that right now.

[W]e continue to anticipate that it will be appropriate to raise the target range for the federal funds rate when the committee has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term... On both of these fronts, as I noted, we have seen some progress. Even so, the committee judged that economic conditions do not yet warrant an increase in the federal funds rate. While the committee views the disappointing economic performance in the first quarter as largely transitory, my colleagues and I would like to see more decisive evidence that a moderate pace of economic growth will be sustained, so the conditions in the labor market will continue to improve and inflation will move back to 2 percent.

What we can do is to do our very best to communicate clearly about our policy, and our expectations, to avoid any type of needless misunderstanding of our policy that could create volatility in the market and potential spillovers as well to emerging markets. And I have been trying to do that now for some time. I've been doing my best to make good on that pledge.

I think our experience suggests that it's hard to have great confidence in predicting what the market reaction will be to Fed decisions, and there have been surprises in the past. I don't think the committee anticipated that its decision would cause the "taper tantrum."

And all I can say is that uncertainty in the markets at this point about long-term rates doesn't appear to be unusually high. And we can only do what is in our power to attempt to minimize needless volatility that could have repercussions for other countries or for financial stability more generally, and that is to attempt to communicate as clearly as we can about our policy decisions, what they will depend on and what we're -- what we're looking at.

The Federal Reserves vice chairman, Stanley Fischer, said that it was time for the central bank to bring a little more mystery to its relationship with financial markets, suggesting on Friday that the postcrisis era of detailed guidance was drawing to a close.

The Fed has sought to increase its influence over markets since the Great Recession by talking about its future plans: how much money it intended to invest in securities; how much longer it expected to hold its benchmark rate near zero. Most recently, the Fed said in January that it did not plan to raise rates before June.

It seems to me that you unnecessarily constrain yourself,

Mr. Fischer said of such guidance during a panel discussion at an annual monetary policy conference sponsored by the University of Chicago Booth School of Business. Theres no good reason that I can see for us to telegraph every action that we have to take.

The Federal Reserves vice chairman, Stanley Fischer, said that it was time for the central bank to bring a little more mystery to its relationship with financial markets, suggesting on Friday that the postcrisis era of detailed guidance was drawing to a close.

The Fed has sought to increase its influence over markets since the Great Recession by talking about its future plans: how much money it intended to invest in securities; how much longer it expected to hold its benchmark rate near zero. Most recently, the Fed said in January that it did not plan to raise rates before June.

It seems to me that you unnecessarily constrain yourself,

Mr. Fischer said of such guidance during a panel discussion at an annual monetary policy conference sponsored by the University of Chicago Booth School of Business. Theres no good reason that I can see for us to telegraph every action that we have to take.

Mr. Fischer became the latest to express frustration with the excess attention to liftoff and the relative lack of attention to what happens the next day. Fed officials say there is little difference for the economy whether the Fed acts in June or September.

Mr. Fischer also cautioned that investors should not assume the central bank will raise rates in regular increments, as when the Fed raised interest rates by 0.25 percentage points at 17 consecutive meetings from 2004 to 2006.

I know of no plans to behave by following one of those deterministic paths for the next two or three years, he said. I hope that doesnt happen. I dont believe it will happen.

I'm in favor of making sure that June is on the table as a viable option. In my view, and i think the chair explained this quite well in her testimony, taking patient out does not necessarily mean that a rate rise will necessarily come in June. Right? What it means is that June becomes a viable option that we are going to start looking at any meeting, right, we are going to go into the meeting with that being a possibility. Right now, patient is defined as no rate rise for two meetings.
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So I can't tell you that because we are going to be assessing the data as it comes in, in the spring as we get towards the summer, right? We are data dependent in the sense of we look at incoming economic data, see how it effects our outlook, and then set policy based on that. So I can't tell you today what i will or will not support in June because i want to see the data that comes in over that time. I can tell you that my outlook is that the economy actually is picking up momentum. We've had some very strong labor market reports over the last, you know, six months even. Inflation's below our goal, but the report this morning about what was going in the CPI wasn't a surprise, total CPI being low, but core CPI stabilizing. So my forecast is for inflation to go back up to 2 % by the end of next year.

We should take out patient in March to provide optionality for the committee going forward, Bullard, a non-voting member of the FOMC this year, said in an interview with CNBC.

If we take it out, then we can move at any of the meetings during the summer. But we dont have to. We can make it be data dependent, which is what Id like, he said.

We are coming at this from a position of strength, Mr. Williams said. As we collect more data through this spring, as we get to June or later, I think in my own view well be coming closer to saying there are a constellation of factors in place to make a call on rate increases, he said.

I dont see any reason at all that we should raise rates before June. Thats out, he said. Maybe in June it would be the time to contemplate raising rates. Maybe well want to wait longer, but at least it will be an option to decide on, he said. The Fed has a scheduled policy meeting June 16-17.

Mr. Williams said he would like the Fed to drop its commitment to be patient in deciding when to raise rates because it limits the central banks options on when to move. You would want to remove the patient language only to have the ability to make those data-dependent decisions later in the year, he said.
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Mr. Williamss confidence about the monetary policy outlook is rooted in what he sees as labor market strength. He believes weak inflation, which has undershot the central banks 2% target for more than two years, will rise to its desired level by the end of 2016.

He also said falling short on the inflation target wont necessarily stay the Feds hand on rate increases. Because Fed rate actions have to take account of their effect over the long run, its very likely we would start raising interest rates even with inflation below 2%, he said.

Mr. Williams said it is likely that the Fed will see a hot labor market that should in turn produce the wage pressures that will drive inflation back up to desired levels. He said much of the weakness seen now in price pressures is due to the sharp drop in oil prices, which he said isnt likely to last.

The cosmological constant is that if you heat up the labor market, get the unemployment rate down to 5% or below, thats going to create pressures in the labor market causing wages to rise, he said.

Mr. Williams said there is a disconnect between Fed officials and markets expectations for the path of short-term rates. He said he hopes that can be bridged by effective communication explaining central bank policy choices.

I have no desire to raise rates just to raise rates. Im not worried about financial stability, personally. Im not worried about risks of low interest rates on their own. I am focused on the very pedestrian issue of achieving the Feds employment and inflation goals, and will make policy with those factors in mind, Mr. Williams said.

He said that when the Fed does raise rates, he would prefer a gradual path, but he doesnt expect it to replay the series of steady, small rate increases seen a decade ago. He said he could see the Fed taking whatever action is needed at a given meeting, rather than putting rates on a steady upward path.

WILLIAMS: And I have been in the Fed 20 years. I remember, you know, all the different measured phase (ph), considerable period, and considerable time.

BARTIROMO: Right, right, right.

WILLIAMS: So, we've always had this problem. My hope is, is that we'll be able to move away from the market looking for the Fed to tell them what we are going to do. And basically describe our policy strategy, our goals, how we view the economy, and let market participants come to their own judgments -- basically, when we're going to move, how much we're going to move by, and over what period.

So, you know, we have two get out of this being so explicit with our forward guidance, telling everybody what we're planning to do. That was really important in 2011, 2013, 2014, when we had the zero interest rates. It was a really powerful tool I think that helps us provide a combination, help us support the recovery. Now that we are getting back to the more normal period, I think we have to get away from being so explicit in what we're planning in doing, and let to be just data-dependent and let people try to understand that.

Mr. Plosser, speaking to reporters, again argued in favor of the Fed raising short-term rates off of their current near zero reading sooner rather than later. He also said the Fed needs to remove from its official policy statement its current commitment to be patient on the timing of rate rises.

Mr. Plosser also told reporters that he could see the Feds overnight target rate rising to 1% to 1.5% by years end. He noted that it would be better to get started on rate rises soon so that they can be gradual.

WSJ: Can you describe the economic setting that will convince you it is time to start raising rates?

MESTER: OK. So Ill just say right off, I want June to be a viable option. Were close to our goals. I do think that monetary policy needs to be forward- looking. I think were going to have to move before we reach our goals. And I think monetary policy is very, very accommodative. And so starting to move interest rates up makes sense.

The exact timing is going to depend on the data. Membership of the committee is going to make a decision about that. But I would be comfortable moving rates up in the first half of the year.
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WSJ: If you want June to be a viable option, then patient has to be altered in some way in the March statement.

MESTER: It is a natural conclusion.