In my opinion, the present fed funds rate is still accommodative, and with an economic expansion that now seems to be well established I believe the FOMC still has a ways to go in recalibrating monetary policy.

As price pressures begin to build, I believe appropriate increases in the fed funds target rate will help to prevent rising inflation and encourage desirable outcomes such as increased saving. The Fed must be willing to make the necessary policy moves.

Deficits can indeed be a problem...Real interest rates could rise as government deficits crowd out business and consumer investment. But...there is no need for deficits to be inflationary. The prospect of inflation arises only if the central bank tries to resist the rise in real interest rates, thereby keeping its policy rates too low and inadvertently easing monetary policy.

The cumulative removal of policy accommodation to date has significantly raised measures of the real federal funds rate, but by most measures, it remains fairly low.

We very purposefully moved the federal funds rate down quite sharply in the context of the financial deflation - the set of financial deflationary pressures which occurred as the stock market came down and capital investment went down, capital goods spending went down. And so we very purposefully decided to drive the federal funds rate well below what we considered a long-term sustainable rate.

The current policy stance remains accommodative. Over time, the degree of accommodation will have to diminish, with policy reverting toward so-called “neutral” for inflation to remain well contained. It’s uncertain exactly what the neutral range is, but a common estimate is 3-5 percent.

It should be obvious that the closer the actual rate gets to the neutral range, the more carefully we will need to consider each successive increase...the pace of removing policy accommodation must, in reality, depend on how economic activity and inflation actually develop.

Preserving the credibility of our commitment to price stability is vital. It is important because price stability is critical to giving enterprises confidence to invest in the future. It is more important at a time when we are running very large external deficits, because countries investing their savings here must remain confident that their investments will not be eroded by future inflation. And it is important because confidence in our commitment to price stability affords us more flexibility to act aggressively in the event of future shocks.

If the economy follows the present forecast of slightly above-trend growth, then it would be appropriate for monetary policy to continue to move the real fed funds rate higher. The pace at which we move and the distance we move will depend, of course, on how the economy performs and how the forecast evolves. But we need to be careful to give the world confidence that we will conduct policy in a manner that will keep inflation expectations stable, at low levels.

If my expectations about the path of the real economy over the next year or so are [met], we still have got a ways to go...If we stay on the path we're on and withdraw some of the accommodation we've had in place...we'll be at a point it's not quite as clear how much more we need to do and how quickly we need to do it.

In hindsight I'd have to admit the fact we were able in our statements to give some [clue] of where policy was headed has turned out to be helpful...up to this point.  It's helped financial markets and others be prepared for, and adjust smoothly, to what we've done so far...It's probably reduced volatility in financial markets around the time of our policy actions.

We've been talking about getting policy back to a neutral stance...It's been pretty accommodating for a while...The fed-funds rate target certainly has to be higher than it is right now, but exactly how high I'm not willing to be pinned down on at the moment.

I don't think we have to get policy precisely correct for the economy to do well...The economy is not so fragile that unless the Federal Reserve or other policy makers do precisely the correct thing, something is going to fall apart on either the inflation side or on the growth side.

Recent data, then, suggest that inflation is well controlled. The FOMC has emphasized that it is prepared, if necessary, to move more aggressively to protect the relatively low rates of core inflation that now exist.

If I thought there was some fundamental deterioration in prospect on the inflation front, I might change my assessment of the pace at which we need to move...[But I do] not see that as the most likely outcome.