Over time, I anticipate further steps toward explaining our views, but at a pace that is likely to be measured.

In fact, economists do not fully understand how markets incorporate information. Herding behavior, information cascades, multiple equilibria, and the amount of investment in financial research all pose puzzles about markets and information. The situation is complicated still more when an important participant is seen as having superior information owing to its investment in research or its understanding of its own behavior. In such circumstances, certain types of central bank talk might actually impinge on welfare-enhancing market pricing by being misunderstood and receiving too much weight relative to private judgments.

We're going to have to raise and lower interest rates more frequently than you might otherwise think because, even if inflation doesn't wiggle around, we're just going to have to be vigilant...That's a statement apart from the current (tightening) cycle.

There is a pace at which market participants expect us to raise...It could turn out to be more rapid than that, or less rapid than that.

When the policy tightening cycle finally began earlier this year, the FOMC indicated that, with underlying inflation still relatively low, it would proceed "at a pace that is likely to be measured." As I discussed in a speech in May, the gradualist approach implied by this statement is often appropriate during a period of economic and financial uncertainty (Bernanke, 2004). At the same time that it provided information on its outlook and its expected policy path, however, the Committee properly insisted that its policies would be conditional on the arriving economic data. In particular, the Committee noted that it would respond as necessary to maintain price stability.

I would note that patience in policy action can take several forms. One form would be to wait before taking any action; another would be a damped trajectory for the funds rate once tightening begins. A more gradual increase that begins sooner might enable the Federal Reserve to better gauge the financial and economic response to its actions and reduce the odds that a sharp tightening tack would be required at some point to prevent the economy's overshooting. However, this approach might also run a larger risk of prematurely truncating the expansion--especially if markets interpret the first tightening move as presaging a rapid return to a so-called neutral policy.