Setting a formal inflation target would be appropriate to address concern over rising prices, Lacker said. While he has advocated an inflation target of 1.5 percent, he said he would back a Fed consensus that set the goal at 2 percent.

“I think now -- this point in the business cycle -- would be a relative good time” and “relatively useful to clarify what we mean by price stability,” Lacker said at a conference on manufacturing in the Southeast U.S. hosted by Virginia Governor Bob McDonnell.

I believe, as part of its communications, the Federal Reserve would do well to adopt an explicit numerical inflation goal, just as the Bank of England and many other central banks do.

Let me offer a few general thoughts about what would make for an effective inflation target.

First, it would be stated in terms of some measure of overall, or headline, inflation.

Second, the target must be achievable over a realistic timeframe. That time horizon should be short enough to serve the real interests of the public and short enough to serve as a verifiable check on central bank performance.

But since monetary policy actions do not have an impact on the economy instantaneously, the time horizon should be long enough for the objective to be realized at an acceptable cost. I also accept that there will be times we must allow short-run deviations from the targeted rate of headline inflation, and the stated objective should be constructed with this in mind.

I do not think the establishment of an inflation target would produce much change in how the Federal Reserve conducts policy. We have been pursuing policies with an eye toward 2 percent or slightly less headline inflation at least since we began publicly reporting our longer-term inflation forecasts.

If we are to exit from this period of extreme monetary accommodation in a way that neither leads to higher inflation nor risks undermining the recovery, the public’s confidence in the Fed’s commitment to price stability will be crucial. For this reason, it would be highly desirable for the Federal Reserve to publicly commit to a clear and explicit inflation objective.

Committing to a stated goal to keep inflation low and stable can help to reduce market uncertainty and enhance the credibility and transparency of our central bank. That is why I have advocated for nearly 20 years that the Fed make explicit its commitment to a numerical inflation objective in support of all its mandates. I believe announcing an explicit numerical inflation objective would go a long way toward increasing our credibility and accountability. This would be an opportune time, in my view, to make such a commitment.

“Inflation targeting is another way to force more accountability to the central bank and anchor longer-term inflation expectations,” Bullard said. “Make the central bank say what it intends to do, and hold the central bank accountable for achieving the goal.”

“In this sense, inflation targeting is the modern successor to a commodity standard,”

[T]he Fed should adopt an explicit numerical inflation objective. Moreover, in my view, now is an opportune time to do so. The apparent strengthening of the U.S. economy suggests that, in the not-too-distant future, monetary policy will have to begin reversing course from a very accommodative policy stance. As we choreograph that exit, I believe that the Fed should do all it can to underscore its commitment to maintaining price stability.

...

Some people may argue that there is no need to articulate a numerical inflation objective because the Fed has established a strong record of maintaining low and stable inflation over the last two decades. But this is not an argument against an explicit target. It is an argument against commitment.

With the potential for inflation expectations to be more volatile in the face of energy and commodity price shocks, I think it could be an opportune time for the FOMC to be more specific and publicly announce an explicit numerical inflation objective.

Adopting an explicit numerical objective would have to be the decision of the whole FOMC. My own preference is 2 percent over the medium term, an inflation objective that is quite similar to the targets of many central banks around the world.

With the potential for inflation expectations to be more volatile in the face of energy and commodity price shocks, I think it could be an opportune time for the FOMC to be more specific and publicly announce an explicit numerical inflation objective. Establishing an explicit inflation objective would clearly communicate our policy intentions and affirm our resolve to achieve price stability. It would also help the public to better evaluate the effectiveness of our actions as events unfold.

I want to highlight the analogous character in practical effect of traditional monetary policy using interest rates and the less familiar asset-purchase tools we have employed since the federal funds rate hit its lower bound. Though some have argued otherwise, I believe the FOMC hasoperated for at least a decade with a consistent and fairly well understood rules-based framework. It is within this framework that I think about the desirability of both LSAP3 and the inevitable exit to a less accommodative policy stance.

...

Even though I personally am not expecting an immediate need to implement an exit, I think it's fully appropriate to revisit the implementation assumptions and tools readiness. As I contemplate an exit, two basic and obvious questions come to mind—when will it be appropriate to undertake an exit, and how to implement the exit.

...Since I think passive unwinding is probably not feasible, we will have to decide when to actively implement an exit strategy. And though the answer to when to do this is clear in concept, it is not straightforward in practice. Lags in the effects of monetary policy mean that action generally needs to be taken in advance of definitive changes in the path of economic activity and prices. That is why the policy framework I am describing emphasizes a forward-looking rule-like construct to which the FOMC would simply react.

BERNANKE: Well, first, I think that many of the monetary or nominal indicators that somebody like Milton Friedman would look at did suggest the need for more monetary stimulus. For example, nominal GDP has grown very slowly. Growth in the money supply is a fact -- not talking about the reserves held by banks, which are basically idle, but if you look at M1 and M2, those have grown pretty slowly.
The Taylor rule suggests that we should be in some sense way below zero in our interest rate and therefore we need some method other than just normal interest rate changes to -- to...

TOOMEY: Do you know if Mr. Taylor believes that?

BERNANKE: Well, there are different versions of the Taylor rule. And there's no particular reason to pick the one he picked in 1993. In fact, he preferred a different one in 1999, which if you use that one gives you a much different answer.

TOOMEY: My understanding is that his view of his own rule is that it would call for a higher fed funds rate than what we have now.

BERNANKE: There are, again, many ways of looking at that rule, and I think that ones that look at history, ones that are justified by modeling analysis, many of them suggest that we are -- we should be well below zero, and I just would disagree that that's the only way to look at it. But, anyway, so I think there are some -- there is some basis for -- for -- for doing that.
I'm sorry, the last part of your question was?

TOOMEY: In the context of even, unfortunately, slow economic growth, should that persist, what kind of inflation indications would cause you...

BERNANKE: ... we are very -- we are -- we are committed -- you know, some -- some economists have -- a few economists have suggested temporarily raising inflation above normal levels in order to -- as a way of trying to stimulate the economy. We have rejected that approach, and we are committed to not letting inflation go above sort of the normal level of around 2 percent in the medium term.

So we are looking very carefully at indicators of inflation, including actual inflation, including commodity prices, including the spreads between nominal and index bonds, which is a measure of inflation compensation, looking at surveys, business pricing plans, household inflation expectations. We look at a whole variety of things.  And we -- I just want to assure you, we take the inflation issue very, very seriously, and we do not have the illusion that allowing inflation to get high is in any way a constructive thing to do. And we are not going to do that.

Senator, we're not seeking any change. We think the current mandate is workable. That being said, I think it's entirely appropriate for the Senate to -- and for the Congress to consider what mandate they want to set. There are, after all, central banks around the world that do focus primarily on price stability. And whatever decision the Congress makes of course we will -- we will honor that decision, and pursue that mandate.

During the Q&A, in response to a question about the dual mandate.

Importantly, the Committee remains unwaveringly committed to price stability and does not seek inflation above the level of 2 percent or a bit less that most FOMC participants see as consistent with the Federal Reserve's mandate.

See similar comments by Vice Chairwoman Yellen earlier in the week.

"The purpose of it is not to push down the dollar. This should not be regarded as some sort of chapter in a currency war."

"We have no desire to see inflation higher than the 2%,-or-slightly-below range. We're not doing price level targeting or raising our inflation goal."

"If I were to continue to be concerned about the outlook and thought that further purchases could work, then I would have to seriously consider that step."

Excerpts from a Wall Street Journal interview

Given that we operate under a dual mandate, Congress might insist we also have an employment-level target [in addition to price-level targeting]. Personally, I would be happy with an inflation target, but I don’t think Congress would tolerate it.