Taking all of these factors into account, my assessment is that the risk of inflation remaining too high is greater than the risk of growth falling too low. Of course, whether policy will need to be adjusted and the degree of any adjustment will depend on the data we see in the months to come and how that data influences our forecast of the economy.

If inflation doesn't moderate, I believe additional firming would be needed... 

Moderating growth doesn't reduce inflation.  Central banks reduce inflation.

As reported by Bloomberg News

"Consumption growth is strong," Plosser said following a speech at the University of Delaware Tuesday night.  "Employment growth is strong.  Business investment is weaker than we thought."

" The economy is not as strong as we thought it was two months ago. Inflation is higher than we thought it was going to be two months ago."

"What do you do? Your guess is as good as mine."

From the audience Q&A, as reported by Dow Jones News

"We have a responsibility to make sure inflation does not get out of the bag," Fisher told attendees at a luncheon held by the Dallas Fed in McAllen, Texas. "I am among those ... that believe we still have some more work to do on that front," Fisher said.

...

He said of the U.S. economy, "I believe that we will continue to grow, and the pace of growth will pick up as we go through the year."

In his remarks to the audience, Fisher said that a measure of inflation produced by the Dallas Fed, the trimmed mean personal consumption expenditure rate, remains too high for his taste.

As reported by Dow Jones news

``The inflation rate is higher than what I would like to see,'' Mishkin said in response to a question following a speech today in Bridgewater, Virginia. While it's likely that price gains will moderate, he warned that ``if we don't see that happening, we would have to do something about it.'' 

From audience Q&A, as reported by Bloomberg News

"The inflation rate is higher than what I would like to see," Mishkin said in response to a question following a speech today in Bridgewater, Virginia.  While it's likely that price gains will moderate, he warned that "if we don't see that happening, we would have to do something about it."

As reported by Bloomberg News

There would have to be a high hurdle for me to want to be cutting rates if the economy is only marginally and tentatively on the weak side' and inflation isn't slowing toward 2 percent.

From the audience Q&A session, as reported by Bloomberg News

Because core inflation is above the levels most conducive to the achievement of sustainable growth and price stability, the Committee indicated in the statement following its recent meeting that its predominant policy concern remains the risk that inflation will fail to moderate as expected. However, the uncertainties around the outlook have increased somewhat in recent weeks. Consequently, the Committee also indicated that future policy decisions will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

I'd say it would be more accurate to say we are looking for a bit more flexibility, given the uncertainties that we are facing and the risks that are occurring on both sides of our outlook.

An additional point. We, in general, this is more technical, but we, in general, prefer not to give advance rate guidance, that is, not to tell the market we're going to do this, that and the other. Rather, it's better for the FOMC to describe our outlook and the risks that we see for the outlook and let the markets make their own determination about how to price assets. One aspect of this change has been to move away from forward rate guidance, which we view as being something that should be undertaken mostly under unusual circumstances.

...

Our statement included a description both of the situation on the real side of the economy and on the inflation side and our sense was both, that the risks had increased on both sides, that the outlook for output was a bit weaker, as we indicated in our statement, but that, also, the inflation situation had become slightly riskier, as well. And so both sides of the mandate have -- are facing somewhat greater risks.

From the Q&A session

If long-run expectations are in fact about 2 percent, where is actual inflation likely to be headed in the next year or two? While recognizing how embarrassingly wrong such prognostications often turn out to be, I think that we can be reasonably optimistic that core PCE inflation will gradually drift down from its latest twelve-month reading of 2-1/4 percent...

Looking to the medium term, I am less optimistic about the prospects for core PCE inflation to move much below 2 percent in the absence of a determined effort by monetary policy. For the most part, this assessment--which I should stress is subject to considerable uncertainty--flows from my view that long-term expectations appear to be well anchored at a level not very far below the current rate of inflation. If so, a substantial further decline in inflation would require a shift in expectations, and such a shift could be difficult and time consuming to bring about, as I noted earlier.

Some observers have suggested that the decline in measured persistence implies that inflation will moderate more rapidly in the next year or two than would otherwise be the case.  The model calibrations reported here, however, demonstrate the extent to which the autocorrelation properties of inflation depend on how monetary policy is conducted.  This implies that policymakers should be quite wary of interpreting the fall in persistence since the 1980s as something monetary policy can exploit.  If persistence has declined because policy now responds more strongly to inflation, for example, achieving a more rapid moderation in inflation may require tighter policy.

I expect the economy to continue to operate at a high level relative to its potential, which could eventually lead to the emergence of increased inflationary pressures. In addition, if actual inflation does not show clear enough signs of returning to the center of the range I associate with price stability, there is a danger that expectations of inflation could run too high, which would likely be a self-fulfilling prophesy. Taking all of these factors into account, my assessment is that the risk of inflation remaining too high during the forecast period is greater than the risk of growth falling too low. Thus, some additional firming of policy may yet be necessary to address this inflation risk.

I will say that the Federal Reserve, in collaboration with the president's working group, has been closely monitoring the markets. They seem to be working well, normally.

We've also, of course, been closely monitoring the economy, looking at new data and trying to evaluate their implications for the forecast.

And my view is that taking all the new data into account that there is really no material change in our expectations for the U.S. economy since I last reported to Congress a couple of weeks ago in the Humphrey-Hawkins hearings.

 ...We are looking for moderate growth in the U.S. economy going forward.  And I would add, parenthetically, that the downward revision of the fourth quarter GDP numbers we got this morning is actually more consistent with our overall view of the economy than were the original numbers.

...So we expect moderate growth going forward. We believe that if the housing sector begins to stabilize and if some of the inventory corrections that are still going on in manufacturing begin to be completed, that there's a reasonable possibility that we'll see some strengthening of the economy sometime during the middle of the year.

During Q&A session.

I don't think policy is restrictive, and in fact I see that policy is, if anything, somewhat accommodative.

In a Market News interview

I would see that {tightening in order to bring inflation down quickly} as creating greater risks to employment and to the real economy that to my mind represent a risk that we should not take.   What I want to see is a path for inflation that is heading downward.

In audience Q&A session as reported by Bloomberg News