Inflation, the best we can measure it, has been running between 1 and 2 percent since early last year. Although some recent readings have come in below that range, I believe inflation is unlikely to stay that low. In fact, the public apparently expects higher inflation in the future, which suggests that policymakers will need to be careful to avoid waiting too long to raise rates.

[E]ven if interest rates were at 1%, that would be extraordinarily accommodative [policy, although when it comes to rate hikes] I don't necessarily think we are ready for that.

It depends on the state of the economy... If the economy were to change very, very quickly, I would be delighted, and we would respond appropriately. But given the long period of higher-than-desired unemployment, I would expect that policy would continue to be accommodative for quite some time.

An alternative policy option is to be more proactive, but cautious. This would require initiating a reversal of policy earlier in the recovery while the data are still mixed but generally positive.

Under this policy course, the FOMC would initiate sometime soon the process of raising the federal funds rate target toward 1 percent. I would view a move to 1 percent as simply a continuation of our strategy to remove measured that were originally implemented in response to the intensification of the financial crisis that erupted in the fall of 2008. In addition, a federal funds rate of 1 percent would still represent highly accommodative policy.

The federal funds rate needs to be exceptionally low for an extended period to contribute to easier financial conditions to support economic activity... In the current environment, we are not getting the job gains that we would like to get. We would like to see employment gains much more substantially than what we’ve gotten. What that tells us is that monetary policy needs to be on a very easy setting right now.

I don't think we have any business guaranteeing Wall Street spreads. We need to recognize that and address it by removing these guaranteed extremely low rates. I think it's extremely important that we do that, and not create the conditions for speculative activity and a new crisis down the road.

It depends on a number of things. It’s not clear what we mean by normal. We’re in a different world than we were before the crisis. In particular we’re now paying interest rates on reserve. With interest on reserves we’re moving toward a desirable system which is a corridor system (with interest on excess reserves as the lower bound and discount rate as the upper bound). We’ve got to restrict the volume of excess reserves. We’ve got so many excess reserves floating around the system we could never get fed funds above the lower bound until we get reserves down.

There was this whirl of conversation that we were going to raise the discount rate again. I don’t see us getting greatly involved in that discussion until we have a better idea of how we want to think about our operating procedures.

In response to a question about how quickly the discount rate could be normalized.

At its meeting last week, the FOMC maintained its target range for the federal funds rate at 0 to 1/4 percent and indicated that it continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. In due course, however, as the expansion matures, the Federal Reserve will need to begin to tighten monetary conditions to prevent the development of inflationary pressures.

Combining [my expectation of subdued inflation over the next few years] with my outlook for a gradual recovery warrants maintaining exceptionally low levels of the federal funds rate for an extended period.

Combining [the expectation of subdued inflation] with my outlook for a gradual recovery warrants maintaining exceptionally low levels of the federal funds rate for an extended period. Still, the time will come when it will be appropriate for us to begin removing some of our policy accommodation. It is always a challenge to get the timing right, because our policy decisions have to be forward looking. And the process will be more complicated than usual this time.

I would expect [that the accommodative interest rate stance] will hold for the next three or four meetings, that’s about six months.  I won’t be surprised if it carried into 2011.

We have pushed that rate to zero for all practical purposes. This is as low as it can go. Such an accommodative policy is currently appropriate, in my view, because the economy is operating well below its potential and inflation is subdued. Consistent with that view, the Fed’s main policymaking body, the Federal Open Market Committee, last week repeated its statement that it expects low interest rates to continue for an extended period.

The FOMC met last week. In that meeting the federal funds rate target was kept at the "low as it can go" range of 0 to 25 basis points. Also, the Committee, in its post-meeting statement, said that economic conditions are "likely to warrant exceptionally low levels of the federal funds rate for an extended period." This policy is obviously very accommodative, and, in my opinion, is appropriate for a recovery that is tentative and facing headwinds.

Because I hold to this forecast of modest recovery and believe inflation is likely to remain subdued, I fully support the message of the most recent FOMC statement to the effect that the fed funds target rate will remain exceptionally low for an extended period.

My view was that we should change the language. I didn't object on the fact that interest rates were low at this time, but I think policymakers need to have the broadest options possible and the language that we use, that is very low for an extended period, was appropriate during the height of the crisis to assure that we were not going to make any changes, but now the economy is beginning to recover. It has been in recovery now for two quarters. We have to be thinking a little bit longer ahead and that's really what my admonition was.

In response to a question about his dissenting vote against the "extended period" clause in the January FOMC statement.