``The economy is growing far less than its potential,'' Hoenig [said]. The U.S. can expand at 2.5 percent without creating inflation, versus the 0.6 percent annual rates of the last two quarters, he said. ``When you're that much below potential, people are losing their jobs and the economy isn't creating as much wealth as it should.''

As reported by Bloomberg News.

We estimate ... that every $10 increase in the cost of a barrel of oil reduces the real GDP somewhere between two-tenths and perhaps as much as a half a percentage point.

At a conservative level, that means that we have taken at least another percentage point off on a national scale in terms of real gross domestic product.

As reported by Reuters

There still is growth in the world economy, even if we slow down. It's difficult for me to see a supply response that will feed into that demand to relieve all the price pressures we see on oil.

As reported by Reuters

How deep that slowdown will be is a question mark, ... I am not sure it will be very deep at all, but it may be prolonged, because we have to correct the excesses of this credit crisis.

As reported by Bloomberg News

I consider the current level of monetary accommodation to be appropriate. That, together with the fiscal package, should be sufficient to promote a gradual step up to moderate economic growth later this year. Likewise, I would expect that inflation will moderate in coming quarters, as more slack in labor and product markets emerges and as commodity prices level off.

The bottom line is that construction spending and house prices seem likely to continue to decline well into 2009.

This grim trio—the credit crunch, the deflating housing bubble, and the rising price of commodities—has combined to weigh heavily on demand by both consumers and businesses.

In the 1970s and early 1980s, the wage-price spiral was spun from the pass-through of rising food and energy prices to inflation, which was in turn passed along to wages and, then again, through to final goods prices. Fueling the movement were expectations that monetary policy would allow inflation to continue to rise for the foreseeable future.

I see little reason to believe that we have entered, or are about to enter, such a period of stagflation. For one thing, although current data on growth and inflation have departed from desirable levels, matters looked far worse 30 years ago than they do now.

For another, there is no evidence that wages have started to spiral up, as broad measures of compensation have expanded quite moderately over the past year. Moreover, productivity growth has been fairly robust, and, after incorporating its effects, unit labor costs were up by only ¼ of 1 percent over the past year. In addition, the slack in labor and product markets stemming from the weakening in economic activity that seems likely should put somewhat greater downward pressure on inflation going forward. Therefore, my forecast of the most likely outcome over the next couple of years is that total and core inflation will moderate from present levels.

We've done what we need to do, given what I know about the economy, to generate a recovery.

From Q&A as reported by Bloomberg News

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote growth over time and to mitigate risks to economic activity. I know that some observers are saying that this strategy introduces other risks. For example, some individuals question whether by lowering our policy rate in the face of price pressures, we put at risk our goal of keeping inflation low and stable over the long term.

While even the core price measures in the United States are rising somewhat faster than I would prefer, and inflation presents a key risk to my outlook, I believe that the Federal Reserve’s policy strategy remains compatible with a low and stable inflation rate.

Inflation was disappointing as well last year. The price index for personal consumption expenditures rose by 3.6 percent during 2007, compared to 2.3 percent the year before. Rapid increases in food and energy prices were the obvious culprits, but that provides little comfort to this central banker. The Federal Reserve is responsible for keeping total inflation low and stable—including food and energy prices. While the effects of unexpected commodity price increases are difficult to offset rapidly, an appropriate monetary policy would ensure that such shocks even out over time and do not impart a persistent inflation bias—either up or down.

Summing all of these factors, we think conditions will improve in the second half of this year, but not enough to prevent economic activity from still running at a relatively sluggish pace. We expect real GDP growth will return close to potential as we move through 2009.

...

Regarding the outlook for inflation, we project improvement over the medium term, with core inflation in the range of 1-1/2 to 2 percent by 2010. This forecast assumes that the resource slack being generated by the current weakness in the real economy will work to offset the cost pressures from higher energy and commodity prices ...

Our forecast also assumes—in line with current readings from futures markets—that energy and commodity prices will stabilize some time over the medium term.

As the year drew to a close, economic prospects had dimmed considerably. The consequence is that credit conditions have tightened broadly throughout the economy and especially in the housing sector. Indeed, as I write this letter, we remain deeply concerned about the ongoing problems in the housing sector—rising delinquencies and foreclosures and falling house prices—and the distress it is causing for families and for communities. We are also concerned about the impact of these developments for the economic prospects of the national and Twelfth District economies.

As we begin this year's conference, the still unsteady condition of credit markets is no doubt at the top of the mind for most.

As the Federal Reserve builds on  its consumer protection efforts in order to mitigate foreclosures for current homeowners, we are also concerned about the impact current mortgage market problems are having on individual communities.  The challenges of rising foreclosures are significant at the state and local level and the nature of the problem varies by location.  Through its structure, the Federal Reserve System is attuned to local issues, which both informs its national policymaking and allows for responses tailored to local conditions.