I believe the most likely course for inflation is to settle around its current level in 2005.

I think you have to say...that there are some concerns about inflation now...I think overall underlying inflation is will contained, but there are some areas of the economy where there are more concerns: energy, import prices, and we've heard some anecdotes about greater pricing pressures as well.

Independence is the freedom to pursue a defined monetary policy objective without consideration of political or private interests, and without fear of subordination to other economic policy objectives...Independent central banks do, in fact, do a better job of achieving price stability. The greater the independence of the central bank, the lower the average level of inflation and the less volatile the inflation rate

I'm not anticipating a significant acceleration in inflation this year, or even a significant building of inflationary pressures...[But] I do think that anecdotes, which I think line up pretty much with the decline in the dollar we've seen over the past few years, suggest to me the environment maybe isn't quite as competitive as it was, say a couple of years ago.  And that may mean that there's more possibility for raising prices.  It doesn't mean that it's actually going to happen.

Of course, we will respond appropriately to any indications of a threat to price stability. Price stability, as you well know, is essential for obtaining long run maximum sustainable growth. So, in order to give the current expansion its greatest chance to last for an extended period of time, we must keep inflation under control.

Now that the expansion is solidly in place, the issue of inflation becomes increasingly important.

My own guess is that core PCE inflation in 2005 will be slightly higher than its 2004 rate of 1.6 percent, though likely remaining within what I think of as the "comfort zone" of 1 to 2 percent.

The potential volatility of energy prices, commodity prices, and (to a lesser extent) import prices has been dramatically demonstrated in recent years and so unexpectedly rapid increases--or decreases, for that matter--in producers' nonwage costs can by no means be ruled out. Cost increases that are both large and sustained would, of course, create inflationary pressure. Lagged effects on inflation of the nonwage cost increases that occurred in 2004 are also possible, particularly if the firming of demand increases pricing power and the ability of producers to pass on their higher costs. I can assure you that the Federal Reserve will monitor closely any developments affecting producers' costs.

I don't see inflation pressures building in the near term.

The pass through [of import costs] has diminished...But the weaker dollar does change the competitive landscape. It means foreign producers are not as competitive as they...were and, other things being equal, that may contribute to more [US] inflation.

An accommodative monetary policy stance is appropriate when there is excess slack in the labor market—the current situation—or when inflation is below desirable levels. In my judgment, inflation is now at a level consistent with price stability. With slack in the economy diminishing, the degree of monetary accommodation also needs to diminish over time, toward neutral, for inflation to remain well contained.

I think we have to be vigilant on inflation, but what I'm hearing from businesses is that they continue to feel pressure in the market place from competitors and find it difficult to transfer increasing costs into final prices.

Inflation pressures as measured by our core price indexes have remained surprisingly well contained throughout the business cycle.

To keep inflation well-anchored, the Fed must be prepared to move the federal funds rate around over the business cycle even though inflation remains stable.

We've definitely had a couple of higher-than-anticipated inflation numbers...I'm still relatively sanguine...It's just been a month's worth of numbers that look a little firmer than we expected.  I think we're still on track.