Certainly, the recent data on consumer prices have been encouragingly consistent with the downward tilt to inflation that the FOMC has been expecting. However, we need to be cautious about extrapolating trends from a couple of months of data. The data themselves are noisy--subject to month-to-month variations that are unrelated to more-persistent developments. And we need to recognize that some of the very recent disinflation may represent one-time influences. Energy costs have moved down markedly in recent months, and those declines have fed through to prices for a number of intermediate goods and probably for some final goods as well. But futures markets anticipate that prices of crude oil will increase gradually, which suggests that, once the adjustment to the current level plays out, energy prices will no longer work to restrain total and core inflation. And if a portion of the weakness in goods prices reflects efforts by producers to forestall or correct inventory imbalances, that restraint on pricing will dissipate as firms' corrective actions take effect.

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.

On the inflation front, the good news is inflationary pressures appear to have reached a stasis, despite the labor shortages in certain sectors -- particularly in chemicals and petroleum industries and in functions requiring skilled and semiskilled workers. The bad news is that the stasis is at too high a level for party poopers like me who will have no choice but to advocate tightening monetary policy further if inflation does not ratchet downward.

Given all of this, I would have to say that the risk of unacceptably high inflation still outweighs the risk of substandard economic growth

[T]he level of the core inflation rate remains uncomfortably high.

The general tenor of the data has suggested that inflation is leveling off or declining, rather than continuing to rise.

...The St. Louis Fed president said the cost of another round of inflation pressures "could be quite large", and in that regard he is "asymmetrical" in his assessment of the risks to the economy of a sustained period of elevated inflation. 

"However, my judgment is that looking ahead the risks the data will come in higher than anticipated on inflation are roughly symmetrical with the risk that the inflation issue will subside," Poole said.  The current level of the federal funds rate is "just about right given the information we have".

As reported by Bloomberg News

Inflation, though down somewhat from its level earlier this year, remains uncomfortably elevated. Financial market prices imply that inflation will continue its gradual but persistent downward track during the forecast period. There remain, I believe, clear upside risks to that inflation outlook.

"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

"One month doesn't make a trend,'' Moskow told reporters after a speech to American Business Media in Chicago. ``{The CPI} is moving in the right direction. The key is whether that can be sustained and how quickly we can move to rates that are within the range that is commensurate with price stability. We are certainly not there now.''

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.

By my standards, inflation has been too high. I prefer to see it between 1 and 2 percent. But the 12-month change in the price index for personal consumption expenditures excluding food and energy, also known as core PCE, has been running at or above 2 percent for 30 months, and in September it was 2.4 percent. In part, core inflation has been elevated because businesses have raised their prices in response to earlier increases in energy costs. High levels of resource utilization also have added more generally to inflationary pressures.

Looking ahead, it's likely that core inflation will come down somewhat over time. The recent declines in oil prices clearly are a positive factor. And the expected deceleration in economic growth will help avoid sustained pressures from resource constraints. Still, there is a risk that core inflation could run above 2 percent for some time.

Thus, in my judgment, inflation appears poised to decelerate in coming months as energy prices stabilize and resource pressures ease. But the risks to that outlook seem tilted toward the upside.

First the good news: It is possible that the trend in overall consumer inflation has peaked and is finally heading lower. Next, the not-so-good news: The overall inflation trend remains at a level above my comfort zone. I am encouraged by the change in direction of trend inflation, and I hope that in the future my CEO and CFO contacts will be telling me that the competitive forces of globalization have kept their pricing power limited or nonexistent.

"I don't want to speak for any of my colleagues, but I'm unhappy with inflation where it is now," he said.

The recent core PCE trend "doesn't give me any confidence in how fast it's going to come down," Lacker said.

As reported by Dow Jones Newswires

We would like to see the economy slow some to relieve wage pressures... Frankly, the economy seems pretty strong outside of housing.  The job market remains healthy.  The risks with respect to growth are two-sided."

From Q&A session as reported by Reuters

Looking ahead, it's likely that core inflation will come down somewhat over time. The recent declines in oil prices clearly are a positive factor. And the expected deceleration in economic growth will help avoid sustained pressures from resource constraints. Still, there is a risk that core inflation could run above 2 percent for some time. We could be wrong about reduced pressures from resource constraints, or we could see further cost shocks. And perhaps most importantly, if actual inflation continues at high levels, it could cause inflation expectations to run too high.