"I'd prefer an inflation target of zero, assuming it was possible to exactly measure the rate of purchasing power erosion," Poole said in the interview.
  Since that isn't possible, the Fed should establish a core inflation target of 1%-2%, Poole said, according to the article.
  "A lot would be gained in terms of discussions at the Federal Reserve Open Market Committee," Poole said. "The discussion would be clearer because everybody would mean the same thing when they speak of price stability."
  The discussion on the Fed's communication policy, which could result in the adoption of an inflation target, will probably take some time, Poole added.

From a DJ summary of a FAZ interview.

Another key issue is that we need to greatly improve the quality of the written documents that go with this process. The current Monetary Policy Report is really terrible. It’s dull; it’s sex made boring. I don’t want to criticize too much, but it is. ... If it were a textbook, and I can tell you I know a lot about this, you wouldn’t sell one copy. [Laughter] So it’s a problem.

Ready access to a wide variety of information is essential for transparency and accountability of monetary authorities and a full understanding of policy actions by the public...

Contrast the current situation with the one in 1979. At that time, actions by the Board of Governors on discount rate changes were reported promptly, but there was no press release subsequent to an FOMC policy action and FOMC meeting minutes were released with a 90-day delay. On Sept. 19, 1979, the Board of Governors voted by the narrow margin of 4-3 to approve a ½ percentage-point increase in the discount rate, with all three dissents against the increase. This information generated the public perception that the Fed officials were sharply divided and, therefore, that the Fed was not prepared to act decisively against inflation. John Berry, a knowledgeable reporter at the Washington Post, observed that “the split vote, with its clear signal that from the Fed’s own point of view interest rates are at or close to their peak for this business cycle, might forestall any more increases in market interest rates.”(9) However, the interpretation of the “clear signal” was erroneous. On that same day, the FOMC had voted 8 to 4 to raise the range for the intended funds rate to 11-1/4 to 11-3/4 percent. More importantly, three of the four dissents were in favor of a more forceful action to restrain inflation.(10) Neither the FOMC’s action, the dissents nor the rationale for the dissents were revealed to the public under the disclosure policies then in effect. The result was to destabilize markets, with commodity markets, in particular, exhibiting extreme volatility.

The Federal Reserve could “sit back” and let the bond market play the role of automatic stabiliser in the economy, even amid concern over the housing slowdown, Bill Poole, president of the St Louis Fed, has told the Financial Times...

“The decline in long rates is working as a built-in stabiliser for the economy,” he said, noting that the fall in bond market rates “will tend to bring down mortgage rates” as well...

"The FOMC can some of the time -- maybe even much of the time -- sit back and do relatively little, relying on the stabilising effect of market reactions to current data," he said.  "We don't have to do it all." 

The practical import of this implication for central bank communication policy is that communications should focus on policy fundamentals of goals and the model of how the economy works. The economy works best when policymakers disclose the systematic part of policy and minimize the random part. That is, policy should not itself be a source of random disturbance. In the extreme, austere version of the model I am now discussing, central bank communication about policy responses to individual shocks is unnecessary and more likely to create market disturbances than enlightenment.

And I expect the Fed will keep trying new and different ways to communicate important views and actions, including perhaps establishing targets for acceptable levels of inflation.

Such models provide insight into how to conduct monetary policy that will successfully sustain a low and stable inflation environment: the monetary authorities must clearly communicate their inflation policy objectives. The communication must be symmetric: private agents must understand what rates of inflation are unacceptably high and what are unacceptably low to the central bank. Central banks that announce explicit numeric inflation objectives go a long way towards satisfying this communication objective.

Faced with an uncertain view of the future, the natural tendency of policymakers is to wait for further information on the state of the economy. In the absence of decisive policy actions, central bankers may be able to stabilize long-term inflation expectations by clarifying their vision of price stability.

Bernanke said in response to questions about the Bartiromo affair, that what had happened was "a lapse in judgment on my part." He added, "in the future, my communications with the public and with the markets will be entirely through regular and formal channels.

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.''

There are two things that we need to do with the language and Fed communication more generally. First, we need to help the market understand how we are likely to respond to various changes that occur in the world, surprises if you will. And part of that comes about as a consequence of explaining our policy actions in response to something that has happened.

Secondly, the Fed ought not itself to be a disturbance to the market. And one of the things that has concerned me is that the language we have used has, I believe, from time to time had multiple interpretations in the market. Now everybody has had the same view of what it is that we said. In fact, I'm willing to bet that not everybody in the FOMC had the same view as to what it is we just said. And that to me is a problem.

I don't think we are communicating clearly if we ourselves don't have the same view and particularly if the market reads different things into what we're saying. So I - and that can be a source of random disturbance to the market which is not constructive so?

[W]e need to draw a distinction between language that says we intend or expect at this time not to change the rate next time. That's a very different thing from saying that we have no commitment at all in our own minds as to what we're going to do next time.

First, in terms of policy actions, the Fed has become more systematic in its approach to maintaining price stability and promoting maximum sustainable employment. This systematic approach is well-described by the famous "Taylor Rule" (Taylor 1993). According to the Taylor Rule, an increase in inflation should consistently call forth a tighter monetary policy in the form of a higher real federal funds rate. In addition, the Fed should systematically tighten policy as labor market slack diminishes. Such a response serves to stabilize output and employment and also to preempt an increase in inflation. The experience of 1994 exemplifies the application of these principles: faced with declining unemployment and the prospect of an unwelcome increase in inflation, the Fed engineered a strong funds rate response. Because the Fed has been consistent in its approach, over time, market participants have come to observe its reaction to news and therefore better understand the determinants of policy. Therefore, this approach has enhanced the ability of financial markets to anticipate the policy response to economic developments.

Although the evidence from surveys and financial markets is admittedly mixed, taken together these studies suggest that announcing a numerical price stability objective and greater transparency in general could help further anchor long-run inflation expectations. My personal view is that the steps that we have already taken toward greater transparency have been a good thing, and that we should think seriously about venturing further along this path

I support the idea of a quantitative objective for price stability. I believe that it enhances both Fed transparency and accountability and that it offers important benefits, as I have discussed. In particular, it could help to anchor the public's long-term inflation expectations from being pushed too far up or down, and thus help avoid both destabilizing inflation scares and deflations; a credible inflation objective could thereby enhance the flexibility of monetary policy to respond to the real effects of adverse shocks.