Clearly, if I were to be asked which I have more concern about, it would be there are still risks to the upside. In the distribution curve, there is a tail that is a little bit fatter in terms of risks to the upside on inflation.  if we conduct the right policy, we can bring inflation and have inflation this year at or below 2 percent. But we'll see.

...I don't think my views have changed. I expect we will be growing around 3 percent this year. I believe we can do that, and with the right policy, we can bring inflation down below the 2 percent level.  I don't see a recession staring us in the face, if that is the question.  My views haven't changed very much since I  spoke about this before Christmas.'

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

...I believe that a soft landing is the most likely outcome over the next year or two.  However, I hope my remarks so far make it abundantly clear that there are sizeable risks to this forecast and that I am especially concerned about the upside risks to our inflation forecast. 

A key question for inflation going forward —and therefore, for monetary policy—is what happens if the drag from housing and autos disappears later this year? As I’ve stressed, with labor markets apparently somewhat tight, something else will need to slow to keep growth below potential.

"The economy is very evenly balanced. I think that a standard forecast for GDP is around 3 percent growth with inflation rate gradually tilting down," Poole said in an interview with Bloomberg Television. 

"As long as that situation prevails, the current interest rate environment, as far as I'm concerned, can stay right where it is," he added. 

As reported by Reuters

If we get surprises -- because we are running on the high side of anyone's inflation objective -- that suggest inflation is not likely to be on a downward trend, then I think what I would advocate is that we ought to be ready to raise rates.

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. Thus, some additional firming of policy may yet be necessary to address this inflation risk.

In the statement accompanying last month's policy decision, the FOMC again indicated that its predominant policy concern is the risk that inflation will fail to ease as expected and that it is prepared to take action to address inflation risks if developments warrant.

I wouldn’t rule out further increases in the federal funds rate if inflationary winds gain the upper hand. Indeed, if increases are needed, I would aggressively advocate for them. But for now, I am as comfortable with the inflationary outlook as a prudent central banker can be. No central banker can ever be smug about containing the risk of inflation, but I am pleased with the current direction of inflationary impulses.

If, however, core inflation seems to be settling at a rate above 2 percent, then such an outcome would be unacceptable to me. I put a very high weight on the Fed’s responsibility to maintain low and stable inflation...

My commitment, certainly, is to do what I can to promote policy adjustments that will yield an inflation outcome, on average over a period of several years, centered on 1½ percent on the core PCE price index. Such an outcome will ensure that the FOMC maintains its current high level of credibility. Maintaining price stability is central to maximizing sustainable economic growth and the highest possible level of employment.     

One of these risks, as I’ve noted earlier, is the possibility that we might be underestimating the likely pace of economic activity.  If we get an upside surprise on GDP growth, then monetary policy may have to be tightened somewhat.

In my opinion, there has been a discrepancy lately between the views of the FOMC members, as summarized in the Committee’s public statements, and the views of many financing market participants.  Although there is a wide range of views in the market, some participants have jumped to the conclusion that monetary policy will be eased in the near future.  Surveys of financial market economists show that many expect an easing in monetary policy sometime this year.  In addition, the yield curve and financing futures prices incorporate some expected easing of monetary policy later this year.

In contrast, the FOMC has continued to express its concern about upside inflation risks. After its last meeting on December 12, the FOMC stated that “some inflation risk remain” and that “the extent and timing of any additional firming” would depend on how incoming data affected the outlook for growth and inflation.  

In my view, the easing of monetary policy that market participants expect would be appropriate only if inflation clearly subsided from recent elevated levels, and if the incoming data implied the inflation outlook would remain favorable in the future.  In my judgment, it is premature to conclude that current conditions define a clear path for policy.

The November inflation reports, however, have provided some tentative evidence suggesting a moderating trend. For example, the three-month average rate of change in the core PCE price index fell to 1.8 percent in November. That inflation measure has exhibited substantial oscillations, however – it fell to 1.8 percent in February of last year before rising to 2.9 percent within three months when energy prices surged. In view of the recent record, it will take several months worth of data to provide statistically convincing evidence of a moderation in inflation. In the meantime, the risk that core inflation surges again, or does not subside as desired, clearly remains the predominant macroeconomic policy risk.

Let me be clear that I do want inflation to move down, but I believe policy may now be well-positioned to foster exactly such an outcome while also giving due consideration to the risks to economic activity.

I came to this conclusion by considering a variety of metrics that help assess the stance of policy. These measures include the forecast I have outlined today, as well as the recommendations from commonly used Taylor rules for monetary policy, named after John Taylor, a professor at Stanford who first suggested them. They give an estimate of an appropriate setting of the funds rate given where inflation is relative to an assumed target and a measure of tightness in goods or labor markets.

Taken as a whole, a variety of these rules indicate that the funds rate is currently within the moderately restrictive range that appears appropriate. Current conditions in goods markets generally suggest that the current policy stance is sufficient to bring inflation down to more acceptable levels.

On the policy outlook:
     ``It is highly data dependant in that it is responding to what happens over time. So I remain comfortable with the current stance of policy.  I'm alert to the fact that there are upside risks to inflation and with respect to growth, it could go either way.''

On unemployment:
     ``I expect it to inch up ever so slightly, not greatly but marginally. Perhaps by the end of the year to be a little closer to 5 percent."
     ``A period of slightly subpar growth in the economy would in principle create a little more slack in the labor markets.''
     ``Tight labor markets can be a source of inflation pressure and there are a lot of questions about truly how tight labor markets are."
     ``The unemployment rate is low enough that it should be a red flag to policy makers. ''

On whether she has a bias toward raising rates:
     ``I did indicate in the speech that I do remain concerned about upside risks to inflation. That is essentially what the last statement said. There are upside risks to inflation and we remain concerned. ''

From audience Q&A as reported by Bloomberg News