How does [my current] asymmetric assessment of risks to achieving the dual mandate goals influence my view of the most appropriate path for monetary policy over the next three years? It leads me to prefer a later liftoff than many would like, followed by a very gradual normalization of our monetary policy. I think such a policy setting will best position the economy for the potential challenges ahead.

Now, I take seriously the view that I should go into every FOMC meeting with an open mind regarding the policy decision. And I will do so in our meeting two weeks from now. Should we raise rates or not? I admit to some nervousness about our upcoming decision. Before raising rates, I would prefer to have more confidence than I do today that inflation is indeed beginning to head higher. Given the current low level of core inflation, some evidence of true upward momentum in actual inflation would bolster my confidence. I am concerned, however, that it could be well into next year before the headwinds from lower energy prices and the stronger dollar dissipate enough so that we begin to see some sustained upward movement in core inflation.

A broad deterioration in foreign growth prospects, together with greater risk sensitivity in the wake of the crisis and changes in the rate of potential output growth, may be contributing to a "new normal." The new normal is likely to be characterized by a lower level of interest rates than in the decades preceding the crisis, which counsels a cautious and gradual approach to adjusting monetary policy.
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The slow progress on inflation, together with the likely low level of the longer-term neutral real rate and the slow pace at which the very low shorter-term rate may move to the longer-term rate, suggest that the federal funds rate is likely to adjust more gradually and to a lower level than in previous expansions. In short, "gradual and low" is likely to be the new normal.

When we had a normalization in 2004 to 2006 we moved at the same 25 basis points per meeting for 17 meetings in a row. I am virtually certain that was not optimal monetary policy. That was a very mechanical approach to increasing rates. This time I am hopeful we can be more flexible and reactive to data.

It will likely be appropriate that U.S. monetary policy remain accommodative for some time. Moreover, a lower-than-usual federal funds rate may well be needed to achieve any given desired level of accommodation. Accordingly, it is probable that the return to “normal” interest rates will be gradual. As a business manager or as an investor, I think these are key messages I would be taking from our FOMC statements.

One benefit of a gradual approach to normalization is that it will allow us to recalibrate policy over time as some of the uncertainties surrounding the longer-term level of interest rates, the economy’s potential growth rate, and the longer-run unemployment rate are resolved. But uncertainty about the longer-run destination is not an argument to delay taking the first step. In fact, in my view, given the economic outlook, starting the process to normalize interest rates will help ensure that we can, indeed, take a gradual approach. Delay risks having to move rates up more steeply in order to promote attainment of our goals over time.

After lift-off the upward trajectory of the short-term rates is likely to be quite shallow.

Most FOMC participants expect inflation to rise steadily from these low levels, coming in just a shade under the Committee’s 2 percent target by the end of 2017. My own forecast is less sanguine. I expect core PCE inflation to undershoot 2 percent by a greater margin over the next two years than do my colleagues. I expect core PCE inflation to be just below 2 percent at the end of 2018.
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More specifically, before raising rates, I would like to have more confidence than I do today that inflation is indeed beginning to head higher. Given the current low level of core inflation, some evidence of true upward momentum in actual inflation is critical to this assessment. I believe that it could be well into next year before the headwinds from lower energy prices and the stronger dollar dissipate enough so that we begin to see some sustained upward movement in core inflation. After liftoff, I think it would be appropriate to raise the target interest rate very gradually. This would give us sufficient time to assess how the economy is adjusting to higher rates and the progress we are making toward our policy goals.

“You should retain your options to say this looks a lot stronger, the economy looks a lot stronger than we thought, therefore we’re going to go faster,” Mr. Bullard said on Thursday.

If the labor market tightens more than anticipated, or economic growth or inflation surges, that could make it necessary for officials to consider speeding up the pace of rate increases, he said.

Mr. Lacker said the Fed needs to avoid getting “stuck in a rut” that would impose a predetermined path on rate increases. He said he wanted to avoid the experience of 2004-06, when the Fed raised interest rates a quarter of a percentage point at regular intervals.

FT: The Fed all year has been trying to shift the debate from timing of the first move to the pace. We may be on the cusp of that debate being concluded if things do go ahead in December, which your speech seemed to suggest you thought was a reasonable case. That then takes us to what we mean by gradual. What is your notion of gradualism?

Rosengren: This is where Summary of Economic Projections actually is useful. It hasn’t been completely clear that the Summary of Economic Projections [SEP] always provided information that provided additional clarity to the market. But I do think you are going to get both the range and the median view of what gradual means. December is an SEP meeting. That is going to define what gradual means among all the participants. Already, and I had this chart in the talk, relative to the 25 bps in each meeting that we had at the previous recovery, both the SEP in September — and the markets seem to think it is going to be much flatter than that; I mentioned in the talk that I thought the markets were probably a little bit closer than the September SEP. The September SEP was closer to 100 bps a year. The market is a little bit flatter than that. My own view now, and obviously it could change depending on how data comes in... is that the market path is probably about right.

NY Times: You’ve said you were ready to raise rates six months ago. Do you think the Fed will now need to raise rates more quickly?

Lacker: It’s too soon to tell. I think there’s a chance we are behind the curve, but it will be a year or two before we figure that out. With the anticipation that we’re likely to raise rates gradually and the committee having signaled that expectation, I think we have room to accelerate if we find out that we wish we’d started earlier.

NY Times: Ms. Yellen has suggested the Fed is likely to raise rates by about one percentage point per year. Is that fast enough?

Lacker: That’s a plausible pace for me, but if I picked a number it might be a little higher than that, a little more rapid than that.

Given the uncertainties surrounding the degree of accommodation that is necessary to achieve 2 percent inflation and full employment, I prefer a path that involves only gradual increases in interest rates and that essentially probes how tight labor markets can be, consistent with our 2 percent inflation target

Addressing whether the Fed should hike interest rates next month, the dovish Fed official acknowledged, "We've indicated that conditions look like they could be ripe of an increase."

"[But] my continued preference for more delay or a shallower path ... [is] my uncertainty over whether ... inflation is going to get up to our 2 percent objective within reasonable amount of time," he said on "Squawk Box."

What the committee has been expecting is that the economy will continue to grow at a pace that's sufficient to generate further improvements in the labor market and to return inflation to our two percent target over the medium term. And if the incoming information supports that expectation, then our statement indicates that December would be a live possibility, but importantly, that we have made no decision about it.

Now, it is as you asked about the timing of such a move. The committee does feel that moving in a timely fashion, if the data and the outlook justify such a move, is a prudent thing to do because we will be able to move at a more gradual and measured pace. We fully expect that the economy will evolve in a such a way that we can move at a very gradual pace and of course after we do so, we will be watching very carefully whether our expectations are realized.

So, when my colleague, Governor Brainard, mentions that inflation is low, if we were to move, say in December, it would be based on an expectation, which I believe is justified, that with an improving labor market and transitory factors fading, that inflation will move up to two percent.

But of course, if we were to move, we would need to verify over time that expectation was being realized, and if not, to adjust policy appropriately. I think I'd also like to emphasize that I know there's a great deal of focus on the initial move. It's been a long time that interest rates have been at zero, but markets in the public should be thinking about the entire path of policy rates over time.

And the committee's expectation is that will be a very gradual path and of course will depend on the actual performance of the economy.

Based on my current assessment of the outlook and the risks around the outlook, I believe the economy can handle an increase in the fed funds rate and that it is appropriate for monetary policy to take a step back from the emergency measure of zero interest rates. A small increase in interest rates from zero is not tight monetary policy. Indeed, I anticipate that beyond liftoff, economic developments will likely mean it will be appropriate for monetary policy to remain very accommodative for some time to come, supporting continued expansion and providing some insurance against downside risks, with rates expected to move up only gradually to more normal levels and with the decisions about that path dependent on incoming information on the economy’s performance and risks to that performance. Given the outlook, delaying the start of liftoff for too long risks having to move rates up more aggressively later on, but I see benefits of our being able to take the gradual path.

“The die has been cast. We are going to have extremely accommodative policy for two to three years,” assuming a gradual increase in the federal funds rate towards more normal levels, Bullard said. “The risk is that you stay with emergency settings way beyond the time emergency settings are required, with unknown consequences. So the simple thing to do is edge your policy back to normal.”