I’m often asked what the end game is for the policy adjustment process. Going forward, we are approaching an increasingly uncertain time for monetary policy.

Excessive fiscal spending tends to boost output in the short run but eventually adds risks to our economy and restricts the effectiveness of monetary policy. The fundamental issues of how to deal with Social Security and rising retiree health care costs only serve to complicate our challenges with fiscal policy.

Explicit coordination of policy setting across countries is not likely to happen in the foreseeable future, and I would argue that such explicit policy coordination would not be desirable. Policymakers have to be able to react quickly in many circumstances... Experience has shown that the best outcomes are achieved when each country's policy focuses on domestic stabilization.

The FOMC has emphasized that it is prepared, if necessary, to move more aggressively to protect the relatively low rate of core inflation that now exists. Nevertheless, the FOMC’s best judgment at this time is that the target federal funds rate can continue to rise at a measured pace and that this policy will maintain economic growth without rising inflation.

Policy will be data-driven when we get data surprises that require a different policy setting..."Measured pace" should not be viewed as an ironclad commitment to a particular outcome at the next meeting.

The FOMC will be following incoming data closely to determine whether the recent moderation in economic growth is likely to persist into the summer and beyond.

Monetary policy arrangements do, and should, adjust over time to changes in the economic and financial environment.

The federal funds rate appears to be below the level that we would expect to be consistent with the maintenance of stable inflation and full employment over the medium run, and, if growth is sustained and inflation remains contained, we are likely to raise rates further at a measured pace.

[The FOMC] should not hesitate to raise interest rates to contain inflation pressures just because it might set off a retrenchment in housing prices, just as we were willing to keep rates unusually low as house prices rose rapidly. Nor should we hesitate to raise rates because higher rates mean higher debt-servicing burdens for the current account, the fiscal authority, or households.

A central bank cannot always offset the effects of government deficits on economic growth and stability. But the more credible the central bank's commitment to price stability, the less likely it is that an inflation premium will be built into market interest rates, and the less likely it is that rising inflation expectations will distort economic decisions.

Should adjustment prove disruptive to sustainable growth and stable prices, the Federal Reserve will certainly be prepared to act. However, my sense is that the implications of current account adjustment for U.S. economic growth and inflation will most likely be benign.

In my view, this ["measured pace"] language has provided useful guidance in the limited time we have used it, but there is a risk that at some point the Committee will take an action that the public regards as contrary to what is implied by the language. To me, this risk suggests that the Committee should provide this type of guidance only when it is highly confident in the course of its near-term policy actions and when it perceives the cost of being misunderstood as exceptionally great.

Though inflation pressures have risen somewhat in recent months, longer-term inflation expectations appear to have remained well contained. I believe that, while underlying inflation is expected to continue to be low, the Federal Reserve must be more alert to monitoring incoming data, and continue to remove policy accommodation at a measured pace, consistent with the incoming data and its commitment to maintain price stability.

I would contend that remarkably aggressive policy action was a defining characteristic of this business cycle. Indeed, monetary and fiscal policy worked together particularly well this time around to provide ample and rapid stimulus during the economic downturn.

The counter-cyclical monetary policy the Fed implemented gave consumers the opportunity to borrow at relatively low interest rates, and they certainly seized it. Households increased their purchases of homes and durables at record rates, dampening the breadth and depth of the past recession.