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.

WSJ: The Fed added new words to its policy statement in January, a reference to international developments.

PLOSSER: Our statement is a bit like Hotel California. Words check in and they never check out. We have way too many words. I think our statement is too long. I think it is too confusing. I think it needs a thorough rewrite. Ive suggested that before. Over the course of this unusual period of time, the statement has gotten longer and longer and policy has gotten more and more complex. Im not sure that all of the extra words and all of the complexity have necessarily improved our communication particularly. At times I think it has gotten more confusing and not less confusing.

Q: O.K., now for the way that the Fed communicates. How should the Fed describe its plans?

A: I would like us to focus more on describing how monetary policy reacts to data. We need to talk about, This happens and were going to do this, that happens and were going to do that." And in doing so you begin to communicate more to the public about, How does the F.O.M.C. think?" And you try to provide some consistency and then the public and the markets learn from that how were likely to act in the future. To me thats better than forward guidance. Why do we want to make commitments about the future when we dont know what it holds?

I don't believe that we need to follow rules mechanically. Judgment will always be required. Yet, policymakers and the public should be very cautious when they call for policy rates to deviate in significant ways from these guideposts. Making such judgments should require careful analysis, and the justification for deviating from the guidelines should be clearly communicated to the markets and to the public. Thus, policymakers will still be able to exercise discretion, but using rules as guideposts will enhance transparency and effective communication.
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[P]ublishing a monetary policy report with an assessment of the likely near-term path of policy rates, in conjunction with its economic forecast, would be a useful exercise and enhance communications. It would also provide added discipline for policymakers to stick to a systematic, rule-like approach. And it would force policymakers to think more deeply and systematically about policy and the justification for significant deviations from the guideposts.

Every meeting that we have is a live meeting at which the committee could make a policy decision, and we will feel free to do so. So I would really like to strongly discourage the expectation that policy moves can only occur when there's a scheduled press conference.

And we have long had in place the ability to hold a press conference -- press conference call rather than an in-person press conference. And we did do so on a number of occasions in earlier years. So the committee clearly would want to be able to explain its reasoning as we begin the process of normalizing policy.

Every meeting is live, and if we were to decide at a meeting to begin to normalize policy, I expect we would -- we would hold a press conference call.

Unfortunately, it is unlikely that policymakers will adopt a specific reaction function in the near term. Yet, there are numerous examples of such systematic approaches or reaction functions that can help us to gauge the stance of policy I frequently consider such reaction functions as I think about policy. These are typically Taylor-like rules named for the Stanford University economist John Taylor who first proposed them in the early 1990s. These policy rules typically call for the targeted funds rate to respond to deviations of inflation from some desired target and to deviations of output from some measure of potential sometimes referred to as economic "slack" or the "gap." Sometimes such gaps are translated into deviations from full employment.

These policy rules can offer useful guideposts for policymakers and the public in assessing the stance of monetary policy, and communicating more about such guideposts would enhance transparency and help make policy more systematic. Thus, there is no need to mechanically follow any particular rule, and judgment will always be required. Yet, policymakers and the public should be very cautious when they call for policy rates to deviate in important or significant ways from these guideposts. Making such judgments should require careful analysis, and the justification for deviating from such guidelines should be clearly communicated to the markets and to the public.

A monetary policy strategy such as I have just described could be communicated through a regular Monetary Policy Report, perhaps published quarterly. The report would offer an opportunity to reinforce the underlying policy framework of the Committee and how it relates to current and expected economic conditions.

Publishing a Monetary Policy Report with an assessment of the likely near-term path of policy rates, in conjunction with its economic forecast, would also provide added discipline for policymakers to stick to a systematic, rule-like approach. Communication about that path, in turn, gives the public a much deeper understanding of the analytical approach that guides monetary policy, thus making policy more transparent and predictable.

While the Committee retained the "considerable time" language, it added clarity by stressing the fact that the decision to lift the interest rate target would be driven by the data. The Committee explicitly noted that should the economy make faster progress than anticipated toward its goals, liftoff could occur earlier, and if progress was slower than anticipated, liftoff could be delayed. From my perspective, this is the operative language and it makes clear that the Committee intends for policy to be data-dependent.

Eleven years ago today, Alan Greenspan, then Chairman of the Federal Reserve, gave an economic outlook speech. The next days headline in The New York Times read as follows: Greenspan Hints at End to Low Rates, while the headline in The Wall Street Journal read: Greenspan Suggests Continued Patience on Rates. That one speech generated such contradictory messages illustrates the challenges monetary policymakers face when communicating with the public.

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.

In extraordinary economic times, forward guidance can be thought of as more than a communications device. It is a tool of monetary policy that has the potential to increase the degree of monetary policy accommodation, especially when interest rates are essentially at their zero lower bound. By reducing uncertainty about the future path of policy, forward guidance helps lower interest rates by reducing the premiums investors demand to compensate them for interest-rate uncertainty.

In addition, in theory, if the central bank indicates that the future path of short-term interest rates will be low for a long time perhaps lower and for longer than would have been consistent with the central banks past behavior this can also put downward pressure on longer-term interest rates, thereby spurring current economic activity. According to the theory, if people believe that the central bank will keep rates very low, they will expect higher economic activity and higher inflation in the future. When households, businesses, and market participants are assured of better economic prospects in the future, they should be more willing to make investments in capital and labor today rather than delaying them, and this will help the current economy.

After several years of nontraditional monetary policy, the transition toward a more normal economy is likely to entail some uncertainty about monetary policy setting. I believe clear policy communications can and should play a key role in reducing that uncertainty. To that end, I favor the Committee being as clear as it can be that monetary policy will be contingent on the state of the economy. I favor putting less focus on a particular calendar date for liftoff. This is why I believe the FOMCs addition to its forward guidance last week was an important step in the right direction. It was a clear statement that if incoming information indicates faster than anticipated progress toward the Committees employment and inflation objectives, then increases in the target range for the fed funds rate are likely to occur sooner than the FOMC currently anticipates. And if progress is disappointing, then increases are likely to be later. I think this is an important message to convey to the public.

"What we think now is that the capital markets have it more or less right but we don't ourselves know when we're going to {raise rates}.
"On the basis of our forecasts of the data ... it looks like markets more or less have it right - somewhere in the middle of the year.

The central bank's only official guidance on the timing is that it would wait a "considerable time" after bond-buying ends, a phrase Fed Chair Janet Yellen indicated earlier this year meant something along the lines of six months.
Fischer took a step that essentially downgraded the value of the phrase, saying it meant somewhere between two to 12 months, putting investors on notice that it will be economic data, not the passage of time, that will drive policy change.

One thing that we have right now is the so-called dot-plot. So there's interest rate projections from all the 17 participants on the FOMC for 2014, '15, '16, '17. And people are interested in those numbers as a guide to when the Fed is actually likely to lift off.

My own personal opinion is that I think people shouldn't overweight the value of those dots, especially as you get out further in terms of the time horizon. I have a dot for '15, '16 and '17, but if I told you what my confidence and around that dot was you would probably not put a lot of weight on where that dot is precisely located. So I think the subcommittee I think will look at the issue.

Are there improvements that can be made in terms of how we communicate the summary of economics projections information? Obviously if it was obvious that there was a better way of doing it I'm sure we would be doing it already. So I don't think that people should be sort of waiting for big changes, but if we can find ways to that improve the communication process then certainly we'll go forward with that.