Although I cannot give you a definitive path for how policy will evolve, I can easily see the possibility of two or three rate hikes over the remainder of the year. That said, all forecasts are subject to fairly wide confidence bands, and mine is no exception.

To reiterate what some of my colleagues have said, June is definitely a live meeting, but obviously what we do depends on how the economy is going to evolve... A few days ago I think there was a pretty strong sense among the FOMC membership ... that the market was not putting in a sufficient probability mass on the notion of tightening at either the June or July meeting. So I’m actually quite pleased to see that that possibility has moved up.

To reiterate what some of my colleagues have said, June is definitely a live meeting, but obviously what we do depends on how the economy is going to evolve. Looking at the market expectations, I think it looks like June is roughly one in three and a tightening through the July meeting looks like about 60% if you look at the federal funds futures market. I don’t know if that’s precisely the right probability, I would have to go around and talk to all of my colleagues, but clearly looking back a few days ago I think there was a pretty strong sense among the FOMC membership, and you can see this in their commentary, that the market was not putting in a sufficient probability mass on the notion of tightening at either the June or July meeting. So I’m actually quite pleased to see that that possibility has moved up.
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If I get convinced that my own forecast is sort of on track, then I think tightening in the summer, with a June/July timeframe, is really a reasonable timeframe.

The expectations that were shown in the March summary of economic projections, the median of two rate hikes, seems like a reasonable expectation. But it depends on how the economy evolves. Two seems like a reasonable number sitting here today, but it could be more if the economy is stronger and inflation comes back more quickly, or it could be less if the economy disappoints.

When it comes to lifting the Feds short-term interest rate target off the near-zero levels its occupied since the end of 2008, I continue to believe that all meetings from June onward should be on the table, the official said in an interview with The Wall Street Journal.
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Mr. Lockhart said in the interview the dearth of inflation in the economy remains a concern to him, even though the yawning gap between where inflation now stands and the Feds 2% price target is significantly driven by the drop in oil prices. He said he will likely have to make a mental trade off between decent growth, good hiring gains, and weak inflation, when he decides about rate rises.

But to support a rate increase, Id like to have evidence the inflation data is firming, or at a minimum, theres no deterioration in the inflation numbers, Mr. Lockhart said. He added, I cannot interpret what we have seen so far as very solid evidence inflation is firming. But he also said Im not interpreting what we are seeing in the numbers as a lower or strong disinflationary impulse.
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He said when the Fed meets next month, its pledge to remain patient on the timing of rate increases will be on the table. Many of his Fed colleagues are ready to ditch the language to provide the Fed more flexibility to respond to the economy. But Mr. Lockhart is more circumspect.

I could go either way on this, he said, adding Im keeping an open mind when the Fed next debates this matter. Mr. Lockhart said it was possible the Fed could strike the patient pledge and add some sort of undefined bridging language about the outlook that would hold it over until rate hikes actually arrive. That said, Mr. Lockhart allowed that taking patient out would allow the Fed flexibility.

In the interview, Mr. Lockhart cautioned that any desire by Fed officials to raise rates is purely driven by the state of the economy. I dont think any central banker, and certainly anyone on the FOMC, has some kind of war weariness with interest rates at their current level, he said. Rates will rise when it is time to raise them, the official said.

The Federal Reserves vice chairman, Stanley Fischer, said that it was time for the central bank to bring a little more mystery to its relationship with financial markets, suggesting on Friday that the postcrisis era of detailed guidance was drawing to a close.

The Fed has sought to increase its influence over markets since the Great Recession by talking about its future plans: how much money it intended to invest in securities; how much longer it expected to hold its benchmark rate near zero. Most recently, the Fed said in January that it did not plan to raise rates before June.

It seems to me that you unnecessarily constrain yourself,

Mr. Fischer said of such guidance during a panel discussion at an annual monetary policy conference sponsored by the University of Chicago Booth School of Business. Theres no good reason that I can see for us to telegraph every action that we have to take.

The Federal Reserves vice chairman, Stanley Fischer, said that it was time for the central bank to bring a little more mystery to its relationship with financial markets, suggesting on Friday that the postcrisis era of detailed guidance was drawing to a close.

The Fed has sought to increase its influence over markets since the Great Recession by talking about its future plans: how much money it intended to invest in securities; how much longer it expected to hold its benchmark rate near zero. Most recently, the Fed said in January that it did not plan to raise rates before June.

It seems to me that you unnecessarily constrain yourself,

Mr. Fischer said of such guidance during a panel discussion at an annual monetary policy conference sponsored by the University of Chicago Booth School of Business. Theres no good reason that I can see for us to telegraph every action that we have to take.

I'm in favor of making sure that June is on the table as a viable option. In my view, and i think the chair explained this quite well in her testimony, taking patient out does not necessarily mean that a rate rise will necessarily come in June. Right? What it means is that June becomes a viable option that we are going to start looking at any meeting, right, we are going to go into the meeting with that being a possibility. Right now, patient is defined as no rate rise for two meetings.
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So I can't tell you that because we are going to be assessing the data as it comes in, in the spring as we get towards the summer, right? We are data dependent in the sense of we look at incoming economic data, see how it effects our outlook, and then set policy based on that. So I can't tell you today what i will or will not support in June because i want to see the data that comes in over that time. I can tell you that my outlook is that the economy actually is picking up momentum. We've had some very strong labor market reports over the last, you know, six months even. Inflation's below our goal, but the report this morning about what was going in the CPI wasn't a surprise, total CPI being low, but core CPI stabilizing. So my forecast is for inflation to go back up to 2 % by the end of next year.

We are coming at this from a position of strength, Mr. Williams said. As we collect more data through this spring, as we get to June or later, I think in my own view well be coming closer to saying there are a constellation of factors in place to make a call on rate increases, he said.

I dont see any reason at all that we should raise rates before June. Thats out, he said. Maybe in June it would be the time to contemplate raising rates. Maybe well want to wait longer, but at least it will be an option to decide on, he said. The Fed has a scheduled policy meeting June 16-17.

Mr. Williams said he would like the Fed to drop its commitment to be patient in deciding when to raise rates because it limits the central banks options on when to move. You would want to remove the patient language only to have the ability to make those data-dependent decisions later in the year, he said.
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Mr. Williamss confidence about the monetary policy outlook is rooted in what he sees as labor market strength. He believes weak inflation, which has undershot the central banks 2% target for more than two years, will rise to its desired level by the end of 2016.

He also said falling short on the inflation target wont necessarily stay the Feds hand on rate increases. Because Fed rate actions have to take account of their effect over the long run, its very likely we would start raising interest rates even with inflation below 2%, he said.

Mr. Williams said it is likely that the Fed will see a hot labor market that should in turn produce the wage pressures that will drive inflation back up to desired levels. He said much of the weakness seen now in price pressures is due to the sharp drop in oil prices, which he said isnt likely to last.

The cosmological constant is that if you heat up the labor market, get the unemployment rate down to 5% or below, thats going to create pressures in the labor market causing wages to rise, he said.

Mr. Williams said there is a disconnect between Fed officials and markets expectations for the path of short-term rates. He said he hopes that can be bridged by effective communication explaining central bank policy choices.

I have no desire to raise rates just to raise rates. Im not worried about financial stability, personally. Im not worried about risks of low interest rates on their own. I am focused on the very pedestrian issue of achieving the Feds employment and inflation goals, and will make policy with those factors in mind, Mr. Williams said.

He said that when the Fed does raise rates, he would prefer a gradual path, but he doesnt expect it to replay the series of steady, small rate increases seen a decade ago. He said he could see the Fed taking whatever action is needed at a given meeting, rather than putting rates on a steady upward path.

That wage number that you saw this morning going down is somewhat indicative of the low inflation pressures that we've been seeing. Earnings growth, you know, on average it's been 2 to 2.25% across a variety of measures. And now it's lower for average hourly earnings this morning. I think if we're going to get inflation up to our 2% objective, and it's now like 1.5% on core a little bit less than that we are going to have to see wages increase more. So I think that's indicative of one of the dilemmas we're facing. And that's why I am in favor of being patient on raising interest rates.
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When I answer the question that's posed to us on what appropriate monetary policy is.., it comes out for me that we shouldn't be raising rates before 2016. If things transpire as I'm expecting. Employment has been good. I've been expecting that. I'm hoping that inflation is going to pick up. And I think we need to see more of that. So, yeah, I think I'd like to have more confidence that we're going to get to 2% by 2016 would be great. 2017 seems like the minimal allowable thing. So i think to get there, I think we need more continued accommodation.

I could imagine interest rates going up in the first half of the year, said Mester, a voter on the policy-setting Federal Open Market Committee in 2014, who didnt dissent at any of the meetings she attended after taking the helm at the Cleveland Fed in June.

Across a number of different indicators it looks like the economy is picking up, gaining strength, with headwinds declining and a lower oil prices providing a tailwind, Mester said. My outlook is for a pretty good economy in 2015.

Indeed, my benchmark outlook is that PCE inflation will not rise back to 2 percent until 2018. This sluggish inflation outlook implies that, at any FOMC meeting held during 2015, inflation would be expected to be below 2 percent over the following two years. It would be inappropriate for the FOMC to raise the target range for the fed funds rate at any such meeting.

Inflation at the current level is not enough to justify remaining at a near-zero policy rate. Low inflation can justify a policy rate somewhat lower than normal, but not zero.

"There are many indicators that tell us interest rates are too low," Plosser told CNBC from the UBS European Conference in London. There is no precedented history to have rates at zero. I think we are really behaving in a way which is outside of historical norms and that should make us nervous," he added.

Dallas Federal Reserve President Richard Fisher told CNBC on Monday that recent stock market volatility has not changed his outlook for ending the central bank's bond-buying program "one iota."

"We have been floating this market with the Ritalin of easy monetary policy," said Fisher, a noted hawk. He's a voting member this year on the central bank's policymaking committee, which was poised to completely exit quantitative easing after next week's meeting.

Mr Rosengren said Fed asset purchases have achieved their stated goal, the jobs report for September is already in and his economic forecasts have not changed. There has been substantial improvement in labour markets, he said. As a result I would be pretty comfortable [ending purchases] at the end of the month.

However, he suggested recent turmoil in financial markets which led to the US stock market plunging last week before recovering on Friday means there is no rush to change how the Fed phrases its forward guidance on future interest rates.

It has to be contextual. Financial markets are volatile, he said. The October statement will have to balance the desire to highlight data dependence with the concern this might not be a time that you want to further destabilize financial markets.

That suggests the Feds considerable time language could survive past its October meeting, although Mr Rosengren now wants to do away with forward guidance altogether. He says that, with the economy nearing full employment, there is too much uncertainty to lay out firm plans.

If youre pretty close to where you want to go, you cant have nearly as much certainty how long its going to take, said Mr Rosengren, pointing out that unemployment at 5.9 per cent is a full percentage point lower than the Fed forecast it would be just 18 months ago.

I would like to tighten when were one year away from full employment, said Mr Rosengren, which on his current forecast would mean a first rate rise in 2015. But he points out how a forecast error could make guidance based on that estimate completely wrong.

Mr Rosengren said recent volatility in financial markets was not such as to make him change his outlook. The fact that its just volatile doesnt bother me, he said. If we were to start seeing long-term rates trending well below our inflation target, that is a warning signal . . . financial markets dont have confidence were going to hit 2 per cent.