For some time, at least since the United States became an oil importer, it has been believed that a low price of oil is good for the economy. So when the price of oil began its descent below $100 a barrel, we kept looking for an oil-price-cut dividend. But that dividend has been hard to discern in the macroeconomic data. Part of the reason is that as a result of the rapid expansion of the production of oil from shale, total U.S. oil production had risen rapidly, and so a larger part of the economy was adversely affected by the decline in the price of oil. Another part is that investment in the equipment and structures needed for shale oil production had become an important component of aggregate U.S. investment, and that component began a rapid decline. For these reasons, although the United States has remained an oil importer, the decrease in the world price of oil had a mixed effect on U.S. gross domestic product. There is reason to believe that when the price of oil stabilizes, and U.S. shale oil production reaches its new equilibrium, the overall effect of the decline in the price of oil will be seen to have had a positive effect on aggregate demand in the United States, since lower energy prices are providing a noticeable boost to the real incomes of households.

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.

Im not really worried about, right now, the risk of further disinflationary pressures beyond the energy price effects, and I am pretty confident that were on the right trajectory in terms of bringing inflation back to 2%, he said.

In fact, he said, the plunge in oil prices is a huge plus for U.S. consumers and businesses.

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. As a result, falling energy prices are beneficial for our economy. In economist parlance, falling energy prices are a positive terms of trade shock for the U.S. Over the near-term, this will lead to a significant rise in real income growth for households and should be a strong spur to consumer spending.

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. We are already seeing this response in Europe and Japan. Second, the decline in energy prices is also likely to ease the global fiscal stance. Over the near-term, for oil exporting governments, falling revenue will not be fully offset by reduced expenditures. This will cause major oil exporters to run either smaller budget surpluses or bigger budget deficits.

The U.S. is in the middle of an energy revolution marked by a steady rise in oil and natural gas production. Just as significant, the sharp fall in natural gas prices in the U.S. has created a huge impetus to investment in energy-intensive manufacturing, such as in petrochemicals. Because the lead times on such investment are long, this impulse will likely persist for many years.

The dual objectives of price stability and maximum employment are generally complementary. Indeed, at present, with the unemployment rate elevated and the inflation outlook subdued, the Committee judges that sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives. However, in cases where these objectives are not complementary, the Committee follows a balanced approach in promoting them, taking into account the magnitudes of the deviations of inflation and employment from levels judged to be consistent with the dual mandate, as well as the potentially different time horizons over which employment and inflation are projected to return to such levels.

Lockhart, who has voiced support for the central bank’s plan to buy the $600 billion of Treasuries, said that so far “the economy seems to be absorbing that higher cost [of oil prices] without severe reaction.” If oil prices top $150 a barrel for a sustained period, “it could have a more serious effect,” and “we could be in recessionary territory,” he said.

We’re probably going to have excess slack in the U.S. labor market at least through the end of 2012, and that’s one reason that colored my view that we shouldn’t be overly enthusiastic about tightening monetary policy too early.

As reported by Bloomberg News

Dudley said that while the effect of higher oil prices on monetary policy depends on the circumstances, the rise in those prices had led to the U.S. economy losing "a little bit of momentum over the past two months."   The rise in oil prices is "a negative for the growth outlook because it does crimp real incomes and it will probably have some effect on consumer confidence," Dudley added.

As reported by Dow Jones Newswires

Commodity prices have risen significantly in terms of all major currencies, suggesting that changes in the foreign exchange value of the dollar are unlikely to have been an important driver of the increases seen in recent months.

The rate of pass-through from commodity price increases to broad indexes of U.S. consumer prices has been quite low in recent decades, partly reflecting the relatively small weight of materials inputs in total production costs as well as the stability of longer-term inflation expectations. Currently, the cost pressures from higher commodity prices are also being offset by the stability in unit labor costs. Thus, the most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation--an outlook consistent with the projections of both FOMC participants and most private forecasters.

Nevertheless, there are important mitigating factors that suggest that it would be unwise for the Federal Reserve to over-react to recent commodity price pressures. First, despite the general uptrend, some of the recent commodity price pressures are likely to be temporary. In particular, much of the most recent rise in food prices is due to a sharp drop in production caused by poor weather rather than a surge in consumption (Chart 26). More typical weather and higher prices should generate a rise in production that should push prices somewhat lower. This is certainly what is anticipated by market participants, as shown in Chart 27.

"I know we need to start by, if we were to do that, communicating to the market that we are not guaranteeing them the yield curve, that we are going to remove this language of ‘extended period,’" Hoenig, president of the Kansas City Fed, said in an interview with CNBC today. He said he didn’t know when the central bank may make such a move, while expressing a preference the Fed act this year.

The economy "has been improving," said Hoenig, who added that he believes the Fed should begin to consider "renormalizing" policy and that he favors "non-zero" interest rates.

Rising oil prices are not a "permanent" or "defining" factor for the economy right now, he said.

I don't think it's going to derail the recovery.  Luckily we have a lot of experience and a lot of track record and a lot of data to process on this, because we've been through this before, seeing oil-price spikes. So in the first instance, it's going to pass through to consumer prices. That'll take a little chunk out of real personal income. So far this seems quite manageable.

The real danger is inflationary psychology. In the last couple of decades, these haven't tended to pass through to core beyond just a little bit of a blip in a couple of months. And so I think as long as inflation expectations are managed pretty well, I think we're going to get through this without a big burst of inflation.

In response to a question about the impact of higher oil prices.

Surging oil prices are now on the front burner as unrest in the Middle East has driven a surge in those costs. Plosser said he doesn't see much of an economic threat to the U.S. thus far, saying those disruptions are "less likely to be a problem for our economy than perhaps the challenges in Europe" generated by the government debt crisis there...

But he did allow he was monitoring the commodity situation, and said "oil would have to rise significantly more [than current levels] and stay there for a while to have dramatic effects on GDP growth."

From the press Q&A session, as reported by Dow Jones

I don't think that quantitative easing monetary policy is the reason that oil prices are up in the past few months. The dollar, after all, has been quite stable, and oil prices are up in essentially all currencies. I think the main reason oil prices are up is the strength of emerging markets, the demand for energy from China and other fast-growing, emerging market economies.

That being said, we're watching it very carefully because, as you point out, higher gas prices are like a tax on families. And if they get too high, then that will in fact be a negative for growth as well as for inflation. So we will pay very close attention to both energy prices and other commodity prices as well.

During the Q&A session