While I believe that excessive accommodation carries a cost in terms of distortions and imbalances in hiring, asset allocation and investment decisions, I also believe that, at this juncture, the Fed needs to show patience in decisions to remove accommodation. Again, this is particularly true in light of key global secular trends as well as recent developments relating to slowing global economic growth and tightening financial conditions.

I believe that the Fed should avoid having a predetermined mindset regarding the path of policy. This path should be driven by our ongoing analyses of cyclical as well as secular trends.

I think it makes sense to emphasize that, at this juncture, monetary policy remains accommodative; although I would note again that policy is somewhat less accommodative than it was on January 1 in light of tightening global financial conditions.

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.

Turning to the FOMC’s normalization strategy being predicated on an environment of stable inflation expectations, Bullard said this renewed downward pressure on market-based measures of inflation expectations during 2016 has called this assumption into question. “I regard it as unwise to continue a normalization strategy in an environment of declining market-based inflation expectations,” he said. “A decline in inflation expectations represents an erosion of central bank credibility with respect to the inflation target.”

It wouldn’t be surprising to see in my [Summary of Economic Projections] submission some slowing, some change in the path [of future rate hikes]. You’ll see some change.

Current estimates of the natural rate of interest in the United States are subject to a fair amount of uncertainty, but most are clustered at or just above zero. This is well above the actual real funds rate, which has been running below negative one. So at this point, estimates of the natural real rate of interest do not suggest that the zero lower bound is impeding the Fed’s ability to attain its 2 percent inflation objective. In fact, this perspective would bolster the case for raising the federal funds rate target.

Now, with our next FOMC meeting just three weeks away, I expect most of you are less interested in what we did at our previous meetings, and more interested in what we are going to do at the next one. I can't answer that question because, as I have emphasized in the past, we simply do not know. The world is an uncertain place--sometimes more uncertain than at other times--and all monetary policymakers can really be sure of is that what will happen is often different from what we currently expect. That is why the Committee has indicated that its policy decisions will be data dependent, which is to say that we will adjust policy appropriately in light of economic and financial events to best foster conditions consistent with the attainment of our employment and inflation objectives.

It is also fair to say that the risks to my outlook are tilted to the downside. The nervousness in the financial markets and the increased caution that it may cause for economic decision-makers, both households and firms, could imply somewhat slower growth, at least in the first half of the year.

Also, inflation is not likely to pick up substantially until the second half of the year, although, for the reasons I have discussed, I remain confident that inflation will move toward the Committee’s long-run objective of 2 percent.

These considerations make me a bit more conservative in my approach to policy, at least in the very near term. Although I cannot give you a definitive path for how policy will evolve, it might prove prudent to wait until the inflation data are stronger before we undertake a second rate hike. Thus, I am approaching near-term policy a bit more cautiously than I did a few months ago. That is part of being data dependent. And attentiveness to the data will be a key factor in all of my future policy recommendations as well. If financial headwinds dissipate quickly and inflation picks up a bit more aggressively, it will require a slightly more aggressive approach to policy.

I believe as we move into the second half of the year with economic activity growing at trend or slightly above trend, the unemployment rate below its natural rate, and price pressures starting to assert themselves, policy can truly normalize. I mean this in the sense that we can move away meaningfully from the zero lower bound and that our reaction to incoming data can return to a more historical pattern.

We are watching developments very carefully. I would say there is always some chance of a recession in any year, but the evidence suggests that expansions don't die of old age.

We are, as I mentioned in my testimony, looking very carefully at global financial market and economic developments that create risk to the economy. And we are evaluating them, recognizing that these factors may well influence the balance of risks or the trajectory of the economy, and thereby might affect the appropriate stance of monetary policy.

We certainly felt in December when we made our decision to raise rates that the economy was recovering, that inflation would move up, and it would likely be appropriate to gradually, gradually continue to raise rates. Not to cut them.

A lot has happened since then. As I have indicated, global economic and financial developments impinge on the outlook. We are in the process of evaluating how those developments should affect our outlook or our assessment of the balance of risks. We will meet in March and provide a new set of projections that will sort of update markets on our thinking on the outlook and the risks.

But I have not thought that a downturn sufficient to cause the next move to be a cut was a likely possibility. And we have not yet seen, I would say, a shift in economic outlook that's sufficient to make that highly likely.

But in saying that, I also want to make clear that policy is not on a pre-set course, and if our perception of the risks and the outlook changes in a manner that did make that appropriate, certainly that's something the committee would have to take into account in order to meet its objectives. It's not what I think is the most likely scenario.

"One thing I think we can say with more confidence is that financial conditions are considerably tighter than they were at the time of the December meeting," said Dudley, a permanent voter on the Federal Open Market Committee, the Fed's monetary policy arm.

"So if those financial conditions were to remain in place by the time we get to the March meeting, we would have to take that into consideration in terms of that monetary policy decision," he said.

"Standard monetary policy strategy says a little less inflation, maybe a little less growth ... argue for just a smidgen slower process of normalizing rates," Williams said.

"We got a little stronger dollar, some mixed data on the economy, some weakness in (fourth-quarter U.S. GDP growth), all of those coming together kind of tell me that we probably need a little bit more monetary accommodation this year than I was thinking in the middle of December."

We dropped the reference to balance on the risks -- that was deliberate -- which should send a signal that we are assessing non-U.S. economic conditions, global financial conditions and the impact of both of those on underlying U.S. economic conditions

[W]e expect that the normalization of monetary policy will be quite gradual. But, there is no commitment here. The flow of the data—broadly defined―will drive our actions as it influences our assessment of the economic outlook and our view of the stance of monetary policy best suited to achieve our dual mandate objectives of maximum sustainable employment and price stability.

I felt that the likelihood of a substantial tightening in financial market conditions due to lift-off was relatively low, in part, because the rate hike was widely anticipated. Market conditions had adjusted quite smoothly—except for some strains observed in the high-yield debt market—as market participants placed higher odds of tightening in the weeks preceding the December FOMC meeting. This reinforced that conclusion. A large market reaction would have been a surprise given that this was one of the most anticipated monetary policy events in history. Also, the policy action needs to be viewed in context. While this decision was the first upward adjustment to short-term rates in nearly 10 years, the actual move was small—only 25 basis points—which, by itself, should have only a very mild impact on the overall trajectory of the economy. As we noted in the FOMC statement and as Chair Yellen pointed out in her December press conference, even after this rate hike, the stance of monetary policy remains accommodative.

“Generally speaking, the markets and the committee are not thinking in terms of a January move,” Bullard said. “As far as March, we would want to get more information and see how things play out before we make a judgment.”