I would say the inflation picture will be hard to read in the coming weeks, perhaps months. Therefore the conclusion that I will have to draw—and any individual participant on the [Federal Open Market Committee] will have to draw—in terms of being reasonably confident that inflation will converge in the medium term back to target, is going to be more of a composite of indirect evidence or indirect indicators than being satisfied with the direct evidence on inflation.
Having said that, one of the ways I go about evaluating inflation—I obviously like everyone else look at the 12-month number. Then I look at the near-term, shorter-horizon numbers. The three-month number gives me more of a sense of a run rate, the six month number has some of those benefits as well. Some of the shorter-horizon inflation numbers in the [personal consumption expenditures[ price index seem to be firming relative to the longer horizon. I take some courage from that.
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My own approach to that is to say is I think we have to put significant weight on the accumulated progress we have seen quite literally over a number of years, but certainly since the first of the year, and not be overly influenced by the gyrations that so often occur in month-to-month data. That is not to say that you ignore the evidence that is most proximate to the date of having to make a decision, but I won’t be overly influenced by just the latest thing I’ve heard on the economy. I do think this is a time to try to take a pretty broad perspective, a pretty long horizon perspective to where the economy is relative to where it was and whether a policy rate at zero continues to be appropriate for the circumstances.
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I want to sort of hold off on {the specific question of whether liftoff will come in September}. I have said publicly before that I lean toward September and I am still very open to a September move.
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One framework that I will be using will be looking for any indication in the economic data that undermines my basic belief about the track of the economy... I will be looking closely at all evidence that we see in the data for indications that my basic assumptions are wrong or should be doubted... That is going to be one of the principal ways I will go about judging the question of whether liftoff in September is appropriate or not. To interpret that, that means I think there is a high bar right now to not acting, speaking for myself. It will take a significant deterioration in the economic picture for me to be disinclined to move ahead.