We have a pretty good cruising speed currently... We have seen some very encouraging news {about inflation}...  I am very comfortable with where we are now in terms of our policy. 

From a Bloomberg TV interview.

The longer core inflation persists above 2 percent, the greater the danger of inflation becoming entrenched at too high a rate.

Many forecasters have been saying core inflation will moderate in the near term, and this certainly would be desirable. But such a moderation is not yet evident, despite the two most recent CPI reports. For example, the three-month average rate of change in the core PCE price index has been oscillating between 1.8 percent and 2.9 percent since last year's hurricanes, and stands at 2.7 percent as of October. In view of this recent record, it would 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.

So, taking all these factors on growth and inflation into account, my current assessment is that the risk of inflation remaining too high is greater than the risk of growth remaining too low. And as reflected in the minutes of the October meeting, the Federal Open Market Committee agreed that inflation risks remained the dominant concern.

Thus some additional firming of policy may yet be necessary to bring inflation back to a range consistent with price stability in a reasonable period of time. But that decision will depend on how the incoming data affect the outlook for the economy.

While I am fairly optimistic that the fundamentals remain sound for continued economic expansion, I am not as sanguine about the prospects for inflation.

...So we need to remain vigilant and recognize that maintaining the current stance of policy, or even firming further, may be in the best interests of the economy’s long-run performance.

Prices on federal funds futures and Eurodollar futures suggest that market participants expect the FOMC to cut the target federal funds rate about 50 basis points during 2007, a view consistent with expectations of a "soft landing." At the same time, market-based options prices on these interest rate futures indicate that implied volatilities are quite low, suggesting a surprising degree of certainty regarding policy expectations. Taken at face value, market participants appear to be reasonably certain of a benign outcome for both economic growth and inflation. In contrast, my own judgmental forecast includes a wider range of possible outcomes than is implicit in these market-based measures.

"I'm comfortable presently with where we are."

...

Fisher said that inflation is "stickier" when slowing down than when it's acclerating and that "one month does not make a trend."

As reported by Bloomberg News

Taking all of the factors on growth and inflation into account, my current assessment is that the risk of inflation remaining too high is greater than the risk of growth being too low. Thus, some additional firming of policy may yet be necessary to bring inflation back to a range consistent with price stability in a reasonable period of time. But that decision will depend on how the incoming data affect the outlook.

Federal Reserve Bank of St. Louis President William Poole said the central bank's interest-rate stance is ``about right,'' though higher borrowing costs will be needed should the Fed fail to bring inflation down.
     ``We need a policy that is disciplined enough to get the job done, but not more so,'' Poole told reporters after a speech in Wilmington, Delaware. ``If all the information taken together suggests that we are not making progress, then I will be among those who will push for a tighter policy.''

...He reiterated that he sees the outlook for the fed funds rate as ``roughly symmetrical,'' meaning the chances of an interest-rate cut and an increase are about equal. He didn't give a time frame for the next move up or down.

Taking all of the factors on growth and inflation into account, my current assessment is that the risk of inflation remaining too high is greater than the risk of growth being too low. Thus, some additional firming of policy may yet be necessary to bring inflation back to a range consistent with price stability in a reasonable period of time. But that decision will depend on how the incoming data affect the outlook.

The inflation outlook is a slightly different story.  I do not believe that inflation will accelerate further.  In fact, I expect some slowing in the rate of inflation as recent energy price changes and the effects of monetary policy actions work through the economy.  But some risk remains that inflation will not recede into a range consistent with the FOMC's price stability objective.  In that event, it is possible that some additional monetary policy restraint would be required.

Taking all of the factors on growth and inflation into account, my current assessment is that the risk of inflation remaining too high is greater than the risk of growth being too low. Thus, some additional firming of policy may yet be necessary to bring inflation back to a range consistent with price stability in a reasonable period of time. But that decision will depend on how the incoming data affect the outlook.

"We're flying at a less than optimal altitude in terms of the speed of the economy ... and the good news is that ... some inflationary pressure has been released," Fisher told Reuters in an interview.

"I'ld like to see us gain a little more altitude.  But I'm very comfortable with where we are right now in terms of monetary policy."

From an interview with Reuters News

Taking all of the factors into account, my current assessment is that the risk of inflation remaining too high is greater than the risk of growth being too low. Thus, some additional firming of policy may yet be necessary to bring inflation back to a range consistent with price stability in a reasonable period of time. But that decision will depend on how the incoming data affect the outlook.

I think there are a number of reasons to expect core inflation to trend gradually lower in the future. However, I am keenly aware that this pattern has yet to show up in the data on any sort of a sustained basis. The inflation outlook remains highly uncertain, and until we actually see inflation begin to slow down, I will be focused on the upside risks in the outlook.

In summary, monetary policymakers again are doing a balancing act, seeking the best way to temper inflationary pressures while not exposing the business cycle expansion to undue risk. Holding the stance of policy steady for a time makes sense to me. First, we appear to be within range of the moderately restrictive policy setting that seems appropriate. Second, pausing gives us time to observe the effects of previous policy actions and other factors to allow for adjustments to the policy setting that will keep us moving toward the desired outcome for inflation, output, and employment.