[C]ontrary to popular opinion, Federal Reserve officials do actually eat and fill up their gas tanks. The FOMC's mandate, as I see it, is to control the inflation rate we all experience—so-called headline inflation. In other words, I interpret the Fed's price stability mandate as requiring the FOMC to manage the growth rate in the average of all prices, including food and energy.

... it's our job to control that headline inflation over the course of time. It's not feasible to exert such control day-to-day or month-to-month or even quarter-to-quarter. But monetary policy can control the rate of overall inflation over the medium term. In operational terms, I think growth in overall consumer prices around 2 percent per year through a period shorter than the proverbial "long term," say, a medium-term period of three or four years, is consistent with the Fed's price stability mandate.

While short-term measures of inflation have moved up rather strongly in the last few months, I hold to the view that this trajectory will not persist. I continue to see the Federal Reserve's inflation objective I just outlined as attainable.

       "The FOMC does not have an official inflation target; the former Chairman Greenspan was opposed to it,'' he said.

``We're working in that direction,'' Bullard said. ``FOMC members and the Fed generally are talking about longer-term inflation outcomes and you can interpret that as something close to a perceived target over a period of, say, five years -- a medium-run kind of episode.'' 

     ``I do think the output gap or some measures of resource utilization have some role to play in some sort of optimal policy to get you toward the inflation target at any point in time,'' he said. ``So I wouldn't be a strict inflation targeter.''

As reported by Bloomberg News

However inflation is measured, economists agree that monetary policy has at most a minimal influence on the rate of change in the price level over relatively short time periods—months, quarters or perhaps even a year. Central banks are responsible for medium- and long-term inflation—such inflation, as Milton Friedman wrote, is a monetary phenomenon that depends on past, current and expected future monetary policy. As a practical matter, the medium- to long-term likely is a period of two to five years.

I favor an elastic 'medium term' specification for an inflation target, rather than a specific period such as two years.

As reported in the Wall Street Journal

[U]nder a forecast-based policy regime, policymakers must predict how the economy is likely to respond in the medium term--say, over the next six to eight quarters--to alternative plans for monetary policy.

The practice of the European Central Bank differs somewhat from that of the “inflation targeters.”  The ECB offers a degree of transparency with respect to its monetary policy objective—the ECB has an announced goal of keeping the inflation rate close to but below two percent per annum “in the medium run.”  However, the ECB has never announced an explicit definition of the “medium run.” 

A small step towards a more explicit statement of the FOMC’s inflation objective was taken in 2003 when, at the May FOMC meeting, the Committee indicated that “the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level.”  This statement gives a hint about the view of committee members of the lower end of a tolerance range of measured inflation.  At that time inflation, as measured by the Committee’s preferred “core” personal consumption price index, was approximately 1 percent.  To date, the Committee has not addressed the question as to what inflation rate would mark the limit such that a substantial rise in inflation above that rate would be unwelcome.