By stating that the new language is consistent with prior guidance, the statement makes no change in forward guidance despite the significant economic progress. I do not view this as appropriately data-dependent policy.

The time-dependent language also risks limiting the Committee's flexibility to act in a more timely manner in response to an improving economy. I am afraid the Committee is not leaving itself the flexibility to respond to the data if we continue to see an improving economy.

Many metrics for assessing the appropriate stance of monetary policy suggest that the federal funds rate should be lifting off from zero soon and should be significantly above zero in June 2015. The Committee's forward guidance strongly suggests that such a policy path is highly unlikely. I believe that waiting too long to initiate a gradual increase in rates could result in the need for more aggressive policy in the future, which could lead to unnecessary volatility and instability.

The failure to adjust forward guidance to reflect the improvement in the outlook for the economy and its continued reliance on the passage of time as a governing factor in the decision to increase rates were the underlying factors warranting my dissent.

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.

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.

I think the judgment of the committee is that from the standpoint of the United States and the U.S. outlook, that the decline we have seen in oil prices is likely to be on net a positive. It's something that's certainly good for families, for households. It's putting more money in their pockets, having to spend less on gas and energy. And so in that sense, it's like a tax cut that boosts their spending power.

The United States remains, although our production of oil has increased dramatically, we still remain a net importer of oil. Of course, there may be some offset in the form of reduced drilling activity and possibly some change, some reduction in cap ex plans in the drilling area. But on balance, I would see these developments as positive from the standpoint of the U.S. economy.

With respect to deflation, we see downward pressure on headline inflation from declining energy prices. We certainly recognize that that is going to be pushing down headline inflation and may even spill over to some extent to core inflation. But at this point, although we indicated we're monitoring inflation developments carefully, we see these developments as transitory.

And one reason that the market prices may be different than the committee's is because they place probability on other outcomes that look different than what they regard as the modal forecast. They may also have a different set of expectations about how the -- about the economic outlook and how it's likely to unfold.

So I recognize that there are significant differences. I can't tell you exactly what they're due to. But what I do want to do is communicate as clearly as I can on behalf of the committee how we think the economy is likely to progress and how we would likely set the federal funds rate over time if that forecast bears out.

QUESTION: (inaudible) it doesn't make you uncomfortable {that market rate expectations differ from the Feds}?

YELLEN: There are a number of different factors that are bearing on the path of market interest rates, I think including global economic developments. It is often the case that when oil prices move down and the dollar appreciates, that tends to put downward pressure on inflation, compensation, and on longer- term rates. We also have safe haven flows that may be affecting longer-term Treasury yields.

So I can't tell you exactly what is driving market developments, but what I can say is we're trying to communicate our thoughts as clearly as we can.

What ought to matter in thinking about the stance of policy is what the entire path of interest rates will look like, and I really don't have much for you other than to say that they will be data- dependent, that over time, the stance of policy will be adjusted to try to keep the economy on a track where we see continuing progress toward achieving our goals of maximum employment and price stability.

The federal funds rate has been sitting in this zero to a quarter percent range now for 6 years. And we have a very large balance sheet. We're providing a very highly accommodative monetary policy, and even as we begin to normalize the stance of monetary policy when that becomes appropriate, it's important to remember that monetary policy will still be very accommodative for a long time.

And as we begin to normalize policy, we will be looking at unfolding economic developments, and as the economy strengthens and we come closer to achieving our objectives, I think it's very likely that we will progress on the path of normalizing policy.

But I can't tell you specifically other than saying it will depend on progress, and moves will be data-dependent. I can't say much more than that.

An initial rate increase coming in mid-2015 would be a reasonable guess, Federal Reserve Bank of San Francisco President John Williams said Monday.

The U.S. economy is improving, unemployments coming down and so we are getting closer to the point where I think itd be appropriate for us to think about the pros and cons of raising interest rates, Mr. Williams told reporters during the annual meeting of the American Economic Association in Boston.

But, he said, I see no reason whatsoever to rush to tightening. I dont see any upside risks to inflation. I think these financial stability concerns that people do raise are real things we want to take into account, but that doesnt argue for moving today or in the next few months relative to, say, later in the year.

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}.

If the labor market continues to strengthen, and if we see some signs of inflation beginning to increase, then the natural thing is to get the interest rates up, Mr. Fischer said at The Wall Street Journal CEO Council annual meeting. And we call it normalization.

Mr. Fischer, who took on the No. 2 position at the Fed in June, said the first rate rise will be very important. There is a process that is being set off when the first step startsinterest rates are going to go up and they are going to keep going up for some time, he said.

Market expectations that lift-off will occur around mid-2015 seem reasonable to me. Although that could change depending on how the economy evolves, my views on when do not differ appreciably from the most recent primary dealer and buy-side surveys undertaken by the New York Fed prior to the October FOMC meeting.

Will these forecasts once again turn out to be too optimistic? Subject to a few caveats that I discuss later, my view is that the likelihood of another disappointment has lessened. The consensus forecast seems like a reasonable expectation, in part, because several of the headwinds restraining U.S. economic activity in recent years have subsided. First, the housing sector is currently in much better balance

Second, consumers are in better financial shape. Households are carrying less debt, with total household liabilities roughly $500 billion below their cyclical peak in 2008.

Third, the fiscal restraint that has held back growth in recent years has ended, with the federal budget deficit now at a level consistent with a stable to slowly declining federal debt-to-GDP ratio.

Now that these headwinds have subsided, buoyant financial market conditions spurred, in part, by a very accommodative monetary policy should do more to support economic activity. In particular, compared to historical patterns, the current household net worth-to-income ratio is high relative to the personal saving rate.

Another positive development for both the U.S. and the global economy is the sharp decline in energy prices. Lets start with the U.S. perspective. Despite the impressive recent gains in natural gas and crude oil production, the U.S. still is a net importer of energy.

More broadly, the decline in energy prices also will be supportive to the global growth outlook in two other ways. First, by pulling down inflation in many countries it will spur more expansive monetary policy.

Inflation has been running below the Federal Reserves objective of a 2 percent annualized rate for the personal consumption expenditures (PCE) deflator... Nevertheless, I expect inflation will begin to move back towards our 2 percent objective in 2015. As the economy expands and the labor market continues to tighten, resource slack should decline and this should gradually exert some upward pressure on prices. Also, despite some softness in market-based measures of inflation compensation, inflation expectations still seem well-anchored and this should also work to pull inflation gradually higher.

With respect to how fast the normalization process will proceed, that depends on two factorshow the economy evolves, and how financial market conditions respond to movements in the federal funds rate target. Financial market conditions mainly include, but are not necessarily limited to, the level of short- and long-term interest rates, credit spreads and availability, equity prices and the foreign exchange value of the dollar.

Over time, financial market conditions have become a much more important factor in evaluating the appropriate setting of monetary policy and the level of short-term interest rates.

So, if the effect of short-term rate changes on financial market conditions has become less predictable and more variable over time, what implications does this have for U.S. monetary policy?

[W]hen lift-off occurs, the pace of monetary policy normalization will depend, in part, on how financial market conditions react to the initial and subsequent tightening moves. If the reaction is relatively largethink of the response of financial market conditions during the so-called taper tantrum during the spring and summer of 2013then this would likely prompt a slower and more cautious approach. In contrast, if the reaction were relatively small or even in the wrong direction, with financial market conditions easingthink of the response of long-term bond yields and the equity market as the asset purchase program was gradually phased out over the past yearthen this would imply a more aggressive approach.

In considering the appropriate timing of lift-off, there are three important reasons to be patient. First, the Committee is still undershooting both its employment and inflation objectives. Unemployment is too high and inflation is too low. Thus, monetary policy needs to be very accommodative in order to close these gaps relative to the Committees objectives. Second, when interest rates are at the zero lower bound, the risks of tightening a bit too early seem considerably greater than the risks of tightening a bit too late. A premature tightening might lead to financial conditions that are too tight, resulting in a weaker economy and an aborted lift-off. This would be problematic in that it would harm the Feds credibility and, more importantly, would be difficult to rectify. The U.S. experience during the Great Depression and the Japanese experience over the past two decades illustrate the risks of raising interest rates too soon, especially when inflation is running below the central banks objective. Finally, given the still high level of long-term unemployment, there could be a significant benefit to allowing the economy to run slightly hot for a while in order to get these people employed again. If they are not employed relatively soon, their job skills will erode further, reducing their long-term prospects for employment and, therefore, the productive capacity of the U.S. economy.