Fisher...said he would "err on the side of being a little bit tighter rather than being a little bit looser" with US monetary policy.  The Fed, he said, should make sure "we don't let inflation rear its ugly head."

Researchers using measures of inflation expectations derived from bond market data find that long-run inflation expectations in inflation-targeting countries are remarkably stable and well-anchored, while in the United States long-run inflation expectations have been highly sensitive to economic news.

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 see an inflation rate of 1-1/2% as measured by the core personal consumption expenditures price index, with a comfort zone extending between 1 and 2%, as an appropriate price stability objective for the Fed. In terms of setting a long-run goal, I think it makes sense to focus our public communication on one specific price index. Doing so is simpler and more transparent than giving out multiple, potentially contradictory, objectives for different price indices.

All told, increases in energy prices over the past couple of years probably added about 1/2 percentage point to core inflation in 2005, and the lagged pass-through of past increases in energy prices appears likely to add roughly the same amount this year, provided that energy prices do not rise significantly further.

Econometric evidence suggests, however, that the pass-through of energy prices to core inflation has dropped by more than would be implied by the decline in energy intensity...

Although many factors could have led to these results, a likely explanation is that inflation expectations have become better anchored. In the 1970s, monetary policy unfortunately allowed large increases in energy prices to have a persistent effect on inflation, a policy that undercut the Fed's credibility and caused long-run inflation expectations to be more volatile.

Some may see the trend toward output growth of 3 percent as a failure of policy. But if the estimates [of labor productivity] above are correct, it is not. The economy must be allowed to move along its path of potential growth if we are to achieve monetary policy’s dual mandate of sustainable growth and price stability. Attempts to maintain consistently higher growth than this will only produce inflationary pressures and erode the price stability that is monetary policy’s most important contribution to macroeconomic stability.

Allowing as best we can for measurement bias, which might be in the neighborhood of half a percent per year for broad measures of consumer prices, I favor literally zero inflation. Given measurement bias in price indexes, I might state my goal as inflation between 0.5 and 1.5 percent as measured by the price index for personal consumption expenditures (the PCE price index).

Our economy continues to steam along at a pace that the consensus of economists estimates will be somewhere north of 4 percent in this current quarter, after netting out inflation, which we have maintained at or near the 2 percent level despite record-high energy prices.

Inflation is low and stable, and the public appears to be fairly confident that inflation will remain persistently low and stable.

Providing quantitative guidance to the public about the Committee’s long-run inflation intentions would have the benefit of reducing uncertainty about future monetary policy, and more securely anchoring long-run inflation expectations.

The 20th century saw a gradual but steady departure from the gold standard, culminating in the closing of the U.S. “gold window” in 1971. It is not surprising that expectational stability would have been lost around the same time. When inflation was observed to rise in the 1970s, the public saw no obvious mechanism in place for bringing it back down, and so higher inflation became built into people’s long-run expectations.

As in the mid- to late-1990s, resilient productivity growth appears to be helping contain the inflationary pressures that might otherwise be expected to accompany a narrowing margin of resource slack. That said, we at the Federal Reserve will remain vigilant for any sign of a deterioration in the inflation outlook...The core inflation rate has stayed relatively low in recent months, as rapid gains in productivity have tended to offset cost increases.

Because technology feeds into various macroeconomic aggregates--including household and business spending, productivity, and inflation--its implications for the U.S. economy will continue to necessitate careful observation, improved measurement, and study...A significant slowing in the pace of technological change could have inflationary consequences. Accordingly, monetary policy makers will remain alert, carefully monitoring technological developments that have the potential to mitigate inflationary pressures as well as developments that could raise the risk of overheating.

Core inflation has been low and relatively steady in the last several years. The inflation measure that is widely preferred on methodological grounds, the price index for core personal consumption expenditures, has averaged 1.8 percent over the 12 months ending in October. That is within the 1-to-2 percent range that I and others have proposed as an announced target.  Although core PCE inflation on a year-over-year basis did drift above 2 percent for several months in late 2004 and early 2005 — it went as high as 2.3 percent at one point — it was only after the most recent Annual Revision to the National Income and Product Accounts that the series came in over 2 percent.