Dallas Morning News: What are the big challenges you’re facing today?

Kaplan: We’ve worked our way out of the great recession, and people might have wrongly thought, “OK, whew, that’s over.” I think the effort these next several years will be as or more tricky and challenging as the last five years. The reason is because the world is a lot different. Globalization, an aging population, deleveraging, increasing rates of disruption.

In terms of the economic outlook, the situation does not appear to have changed much since the last FOMC meeting. Some recent activity indicators have been on the softer side, pointing to a relatively weak fourth quarter for real GDP growth. But this needs to be weighed against the strength evident in the U.S. labor market. I continue to expect that the economy will expand at a pace slightly above its long-term trend in 2016. In other words, I anticipate sufficient economic strength to push the unemployment rate down a bit further and to more fully utilize the nation’s labor resources.

When the Committee begins to normalize the stance of policy, doing so will be a testament, also, to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession. In that sense, it is a day that I expect we all are looking forward to.

“We are getting much closer to the finish line from the point of view of whatever you would consider full employment,” Lockhart told reporters Monday after a speech in Orlando, Florida. “I would expect to continue to make progress. So the beginning of normalization of interest rates I think is quite justifiable in the context of continuing progress of multiple measures of employment.”

The decision not to raise the interest rate in September has generated a great deal of discussion at this meeting of the IMF and World Bank and elsewhere. The decision was based, in part, on a desire to have more time to appraise recent developments in the global economy, especially those originating in the Chinese economy, before beginning the normalization of interest rates. There may well have been more comments on foreign economic developments in recent FOMC statements than was common in the past. That is natural given the increasing influence of foreign economic developments on the United States economy, both through imports and exports, and through capital account developments.

The September statement notes that we are monitoring developments abroad. Nonetheless, we do not currently anticipate that the effects of these recent developments on the U.S. economy will prove to be large enough to have a significant effect on the path for policy.

As I anticipate the signal value of incoming information over the next couple of weeks to the October meeting and the nine weeks to the December meeting, I think consumer data are likely to be the most telling. The consumer-based dimension of the economy has been robust for several months. By watching and analyzing the consumer numbers carefully, I hope to avoid the trap of letting one or two months' specific data overly influence my outlook for the economy overall.

I continue to feel that cumulative progress is consistent with liftoff relatively soon. In weighing the timing of a liftoff decision, I'm trying to keep the endgame in focus. For me, the endgame is to begin and sustain an orderly process of normalization when the time is right and when the balance of risks gives us confidence we will not be forced to reverse course. It's also vital, in my view, to keep attention mostly on the real side—the Main Street economy. Financial market gyrations should be influential in a decision only to the extent they could plausibly affect real activity through pretty clear and understood channels.

In my own view, the normalization process needs to begin and the economy is performing in a way that I think it is prepared to take that.

We are sort of anxious to get going, but given the events of the last several weeks, a risk factor has arisen...

It has to be considered an open question whether we move now or wait a little while.

I’m willing to respect the volatility in markets and see how it shakes out here. But just sitting here today, I’m not seeing how this is going to change the forecast and therefore I think the contours of monetary policy are about the same today as they were a couple weeks ago. But I’m open to looking at data, and we don’t have to make a decision until we get to the meeting, so why not wait until the meeting and see if things settle down here quickly?

I want to take the time I have between now and the September meeting to evaluate all the economic information that’s come in, including recent volatility in markets and the reasons behind that.  But it hasn’t so far changed my basic outlook that the U.S. economy is solid and it could support an increase in interest rates.

The key question for the committee is -- how much would you want to change the outlook based on the volatility that we’ve seen over the last 10 days, and I think the answer to that is going to be: not very much.

You’ve really got the same trajectory that the committee will be looking at that we were looking at before, so why would we change strategy, which was basically to lift off at some point.

The committee does not like to move when there’s volatility. If we had the meeting this week, people would probably say let’s wait.

Note:  Bullard also said he would support scheduling a press conference following the Oct. 27-28 FOMC meeting if the committee doesn’t raise rates next month. That would make it easier for the Fed to explain a liftoff in October.

[A]t this moment the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago. But normalization could become more compelling by the time of the meeting as we get additional information on how the U.S. economy is performing and more information on international and financial market developments, all of which are important in shaping the U.S. economic outlook.

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I'm far away from thinking about quantitative easing... The U.S. economy is performing quite well.

I would say the inflation picture will be hard to read in the coming weeks, perhaps months. Therefore the conclusion that I will have to draw—and any individual participant on the [Federal Open Market Committee] will have to draw—in terms of being reasonably confident that inflation will converge in the medium term back to target, is going to be more of a composite of indirect evidence or indirect indicators than being satisfied with the direct evidence on inflation.

Having said that, one of the ways I go about evaluating inflation—I obviously like everyone else look at the 12-month number. Then I look at the near-term, shorter-horizon numbers. The three-month number gives me more of a sense of a run rate, the six month number has some of those benefits as well. Some of the shorter-horizon inflation numbers in the [personal consumption expenditures[ price index seem to be firming relative to the longer horizon. I take some courage from that.

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My own approach to that is to say is I think we have to put significant weight on the accumulated progress we have seen quite literally over a number of years, but certainly since the first of the year, and not be overly influenced by the gyrations that so often occur in month-to-month data. That is not to say that you ignore the evidence that is most proximate to the date of having to make a decision, but I won’t be overly influenced by just the latest thing I’ve heard on the economy. I do think this is a time to try to take a pretty broad perspective, a pretty long horizon perspective to where the economy is relative to where it was and whether a policy rate at zero continues to be appropriate for the circumstances.

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I want to sort of hold off on {the specific question of whether liftoff will come in September}. I have said publicly before that I lean toward September and I am still very open to a September move.

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One framework that I will be using will be looking for any indication in the economic data that undermines my basic belief about the track of the economy... I will be looking closely at all evidence that we see in the data for indications that my basic assumptions are wrong or should be doubted... That is going to be one of the principal ways I will go about judging the question of whether liftoff in September is appropriate or not. To interpret that, that means I think there is a high bar right now to not acting, speaking for myself. It will take a significant deterioration in the economic picture for me to be disinclined to move ahead.

“I still believe this will be the year for liftoff, and I still believe that waiting too long to raise rates poses its own risks,” Mr. Williams said.

“I can’t tell you the date of liftoff,” Mr. Williams said in reference to when Fed officials might boost rates off of their current near-zero levels. That said, “I see growth on a solid trajectory, full employment just in front of us, wages on the rise, and inflation gradually moving back up to meet our goal” of a 2% rise, he said.

Williams said that the September meeting “would be a very plausible time” to start raising interest rates.