While I would not want to make too much of two monthly observations, the strength of the labor market has been a key feature of the recovery, allowing us to look through quarterly fluctuations in GDP growth. So the possible loss of momentum in job growth is worrisome.

My message will be largely favorable, although recent developments have been mixed… The news from the labor market over the past year has been generally good…At the same time, recent signs of a slowdown in job creation bear close watching.

If incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate and most conducive to meeting and maintaining those objectives. However, I will emphasize that monetary policy is not on a preset course and significant shifts in the outlook for the economy would necessitate corresponding shifts in the appropriate path of policy.

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Business investment has been weak in the past six months or so… I suspect there is a transitory element to this weak investment performance, and I expect investment to rebound. But the latest labor market data raise the less favorable possibility that firms may instead have decided to expand their operations more slowly, and I intend to continue to pay close attention to developments in this area.

The economy is continuing to improve. We saw weak growth in the first quarter and relatively weak growth at the end of last year. Growth looks to be picking up from the various data that we monitor, and if that continues and if the labor market continues to improve, and I expect those things will occur, we’ll continue to monitor incoming data and also we’ll assess risks to the outlook.

But it's appropriate, and I've said this in the past, I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate.

“International headwinds affecting the U.S. economy have been widely discussed in global financial markets during the last several years,” he said. “Recent negative international influences on the U.S. economy appear to be waning.”

He looked at two factors that have been widely cited in the international headwinds discussion: global financial stress and the negative impact of a stronger dollar on U.S. gross domestic product (GDP) growth.

“Measures of U.S. financial stress indicate that stress has fallen off its peak earlier this year,” he said. Regarding the second headwind, Bullard noted that the dollar appreciated mostly during the second half of 2014, coinciding with the run-up to the European Central Bank’s quantitative easing program. “This appeared to have had a substantial effect on the net exports contribution to U.S. GDP growth during the winter of 2014-2015,” he said. “Since then, however, the effects of a stronger dollar appear to be waning.”

In my view, the market remains too pessimistic about the fundamental strength of the U.S. economy, and the likelihood of removing monetary accommodation is higher than is currently priced into financial markets based on current data.

While I believe that gradual federal funds rate increases are absolutely appropriate, I do not see that the risks are so elevated, nor the outlook so pessimistic, as to justify the exceptionally shallow interest rate path currently reflected in financial futures markets. The forecast for economic variables contained in the most recent Fed policymakers’ Summary of Economic Projections is consistent with my own estimate – GDP growth slightly above potential and a continued slow decline in the unemployment rate.

Furthermore, I would point out that the extremely shallow rate path reflected in the market for federal funds futures seems at odds with forecasts by private sector economists and by financial firms that serve as counterparties to the Federal Reserve (the so-called primary dealers), as well as my own forecast for the U.S. Economy. Most of these forecasts envision a much healthier U.S. economy than is implied by that unusually shallow path of the funds rate, and many of the major private forecasters expect short-term rates to rise more rapidly than implied by financial futures.

I expect real GDP growth of about 2 percent in 2016, slightly below the average pace of growth in this expansion, but a bit above my estimate of the potential growth of the U.S. economy. If this materializes, then we should see some further reduction in the unemployment rate to around 4¾ percent—my estimate of the rate that I view as consistent with stable inflation over the long term.

“This is an economy on a solid course, not a bubble economy,” she said. “The U.S. economy has been doing well and domestic strength has been propelling us forward despite the fact that we have been suffering a drag from the global economy.”

[E]conomic and financial conditions remain less favorable than they did back at the time of the December FOMC meeting... I anticipate that the overall fallout for the U.S. economy from global market developments since the start of the year will most likely be limited, although this assessment is subject to considerable uncertainty.

In my opinion, the outlook for 2016 and into 2017 swings on the question of whether domestic demand will in fact hold up.

Interest-rate forecasts the U.S. Federal Open Market Committee is set to publish after its March meeting could differ “slightly” from those issued at the end of last year, according to Federal Reserve Bank of San Francisco President John Williams.

There “could be a tweak here or there” in projections known as the dot plot, Williams told reporters Wednesday in San Ramon, California.

Mr. Williams does not vote on rates this year, but he is a key player in the debate. He argued that worries about an impending recession or financial crash circulating in Wall Street were misguided, in much the same way that economists had been wrongly convinced back in 2006 on the eve of the subprime implosion that the US economy was robust.

He said the story today had become that the US was “hyper-fragile” or that it faced a period of so-called secular stagnation, as argued by Larry Summers, formerly US Treasury secretary. “We are always on the verge of collapse; I just don’t think it is supported by the data,” Mr. Williams said.

I still anticipate that the combination of decreasing resource slack and anchored longer-term inflation expectations will contribute to inflation rising to our 2 percent objective over the medium term. Even so, because of the more persistent effects of energy and commodity price declines and U.S. dollar appreciation, the return of inflation to that goal may be slower than I earlier anticipated. This does not deny the possibility of some upside surprise―such as a sharp upswing in wage growth triggered by low unemployment. But, on balance, I am somewhat less confident than I was before.

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I judge that the balance of risks to my growth and inflation outlooks may be starting to tilt slightly to the downside.

I continue to monitor developments, but until I see further evidence to the contrary, my current expectation is that the U.S. economy will work through this episode of market turbulence and the soft patch of economic data to regain its footing for moderate growth, even as the energy and manufacturing sectors remain challenged.

Until we see further evidence to the contrary, my expectation is that the U.S economy will work through the latest episode of market turbulence and soft patch to regain its footing for moderate growth, even as the energy and manufacturing sectors remain challenged. I continue to expect that growth this year will be sufficient to generate some further improvement in labor markets. I wouldn’t be surprised if the pace of job gains slowed somewhat, but the gains should be strong enough to put additional downward pressure on the unemployment rate.