Solid underlying trends in productivity should keep overall production costs in check. But, as I mentioned earlier, there are risks to the inflation outlook—namely, the potential for energy cost pass-through, pressures from increases in resource utilization, and rising inflationary expectations. With inflation at the upper end of my comfort zone, an unexpected increase in inflation would be a serious concern, while a decline in inflation would be beneficial. So I think monetary policy should be calibrated to bring us back to the middle of the range over time.

If—and I emphasize if—my most likely forecast of sustainable output growth and modest inflation is right, then I am of the view that we are very close to having Fed policy properly calibrated for now.

Federal Reserve Chairman Ben S. Bernanke said investors and the media misread his congressional testimony last week as meaning the Fed is done raising interest rates, CNBC reported.

Bernanke said economic data will determine the Fed's rate moves, CNBC anchor Maria Bartiromo said, citing a discussion she had with Bernanke at the White House Correspondents' Association dinner in Washington on April 29.

"I asked him whether the markets got it right after his Congressional testimony and he said, flatly, no,'' Bartiromo said. "He said he and his Federal Open Market Committee members were basically trying to create some flexibility for the Federal Reserve, saying the Fed may pause but the data will really dictate whether more rate hikes will occur.''

[The FOMC] generally feels we're in the ballpark of where we want [the targeted fed funds rate] to be.

Even if in the Committee's judgment the risks to its objectives are not entirely balanced, at some point in the future the Committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook. Of course, a decision to take no action at a particular meeting does not preclude actions at subsequent meetings, and the Committee will not hesitate to act when it determines that doing so is needed to foster the achievement of the Federal Reserve's mandated objectives.

There's a variety of views on the FOMC, but everyone agrees we're getting closer to the stopping point.  And that's why we're so much focused on incoming data and how that's changing our outlook to make the call on when we're actually there.

The available evidence suggests that the pace of economic expansion may moderate a little from its average over recent quarters, keeping resource utilization in line with recent levels.

[Fed officials] are trying to pick up early signs that the rate of economic growth might be cooling off, and we are also very alert to what is happening to price inflation...  Overshooting is something we are very aware of as a risk in policy today. 

I'll tell you at this point, unlike the situation a year ago let's say, at this point I very much go meeting by meeting by meeting. We accumulate the evidence over the course of the weeks between meetings, take it - try to put it all together, look out ahead as best we can and then make the decision at that meeting.

But I myself am not looking beyond one meeting because I think that we are close enough to the region that is an equilibrium. That doesn't say we're going to stop here or that I think we're going to stop here. It doesn't say that I know where my own vote is going to be. But I'm looking at the data one meeting at a time because the information accumulates over time.

...There are always risks on both sides. There are risks that we would stop too soon and there are risks that we would stop too late. And what we have to do is to find the best balance we can between those two risks. I would like - my own view is that inflation is the key here because if - I think we have a lot of evidence that if the inflation rate starts to get away from us that is a much harder process to reverse than if we see the economy softening. Because I believe that the economy would react pretty quickly and constructively to the end of the tightening or even to an easing if it turned out that we saw that in the data. Whereas inflation is a much harder thing to stop once it gets going.

HAYS: As a matter of fact, that up-tick says - predicts that the market's saying that the Funds rate is going to five-and-a- quarter percent. Does the market have it right?

POOLE:   We won't know whether that's right.  I think it's a perfectly reasonable understanding given the information that is now available.   But what I want to emphasize is that the information changes all the time. And that we need to understand the surprises that are coming down the pike and the sensible way to react to those surprises. Now I can't forecast the surprises any better than anybody else can.

Although monetary policy is less accommodative, it will continue to support economic activity in the near term.  Because of the lags with which monetary policy affects the economy, monetary policy accommodation over the past year will continue to act as an economic stimulant in the near term, though clearly not as much of one as in the past several years.  Over the second half of this year, our moves to remove monetary accommodation should help ensure the economy settles into a growth rate that is consistent with the economy’s long-run growth potential....

...However, as the funds rate has entered the neutral range and risen to the upper end of that range as estimated by most analysts, it has become more difficult to know in advance what the next move is likely to be or when the next move should occur.

As a result of these actions, the funds rate now (4 ¾%) has returned to a more normal level and is within the range most analysts would associate with neutrality. In fact, the funds rate now may be at the upper end of the range I would associate with neutrality.

Stern...told Reuters in an interview that since official interest rates now are at or near neutral, policy decisions have become more complex than earlier in the tightening cycle.  "I'm comfortable with it as of March 3," said Stern when asked about the view the Fed did not need to go beyond neutral to a contractionary stance, which would slow economic growth.   "This is going to be data-driven and I try to be receptive to incoming information. If the incoming data turned out to provide some surprises, or caused me to become more concerned about price stability than I am right now, that could change," Stern said.  "We are now in a place where decisions are somewhat more complex because we have covered a lot of ground and we are closer to, if not at, neutral," said Stern.

Nonetheless, it will take appropriate monetary policy to keep inflation and inflation expectations contained. For me, at this time such policy likely entails further removal of policy accommodation.

But there is another very important point to emphasize. Even if the funds rate were at neutral, further changes in policy may be appropriate. My view is that inflation will likely remain contained. Energy prices have come off their highs, and solid underlying trends in productivity should keep overall production costs in check. But there are risks to this scenario. With inflation at the upper end of my comfort zone, an unexpected increase in inflation would be a serious concern, while a decline in inflation would be beneficial.