The relatively low levels of inflation that prevailed over the past decade provide another example of how increasing globalization may be changing the dynamics of the economy. Some have suggested that the Phillips curve has shifted, perhaps owing to the effects of increased globalization.

[An explicit numerical inflation objective or range] would be helpful for the FOMC because it would facilitate both internal discussions and external communication. More importantly, it could help anchor the public’s expectations.

I believe our strategy to act before the appearance of widespread price increases is sound and necessary to keep inflation and inflation expectations firmly in check. The gradual rate hikes at this stage of the economic recovery also reduce the chances that the Fed will later need to take a more painful path of steep hikes. The Fed is not raising rates to stifle economic growth, but to ensure an environment of stable prices and sustainable growth over the long term.

While I see no signs of an imminent and substantial pickup in inflation, we will need to be especially sensitive to incoming data and new developments on prices.

It now appears there has been more pass through of energy costs than I earlier expected. My point is that all of the inflation measures over the past seven or eight quarters show a similar—but distinct—upward tilt.

We still have more ground to cover [in the removal of monetary accommodation]. Otherwise, we risk that some of the increased pressures we have seen recently from higher costs for energy and other items will become permanently embedded in the inflationary mentality of firms and households. So far, this has not happened, and we still believe that monetary accommodation can be removed at a measured pace. But if inflationary prospects do worsen, we will act as necessary to fulfill our obligation to maintain price stability.

The degree to which core inflation picked up in 2004 and 2005 also caught many economists, including this one on the FOMC, by surprise.

A better understanding of the motivation and dynamics of how compensation is determined between firms and individuals or small groups of workers would help unravel a number of the inflation puzzles I think we face, including those involving productivity growth, globalization, markups, and expectations formation.

Recently, inflation readings have been uncomfortably high.  In the past three months, I would describe inflation readings at the high end of anything I would regard as a comfort range for stability...My hope and expectation is the pickup we have seen in inflation the last couple of months is a one-shot thing.

Globalization has progressed in conjunction with a substantial narrowing of inflation differentials across countries over the past twenty years, as the number of countries with high inflation has declined. It may be that globalized financial markets are more effective at punishing inflationary policies and that increased competition in goods markets helps to tame inflationary pressure.

I'm not relaxed about inflation. I don't think any central banker is ever relaxed about inflation. But I don't think there is reason for concern or deep concern or worry, however you want to put it

Inflation pressures may continue to intensify, particularly for prices of non-energy and non-food items. The FOMC will have to sort out whether the data indicate that more rapid price increases are a temporary blip on an otherwise steady long-term outlook or an indication of a more fundamental inflation problem.

Looking ahead, I’m optimistic about the inflation situation. Wage inflation remains modest. Productivity growth remains good. The pricing environment remains quite competitive, which means that firms cannot readily expand profit margins. Should any of these factors change adversely...then inflation risks will rise. Although I believe that inflation risks are tilted to the upside, I do not believe that the probabilities are high enough to justify concern at this time.

With a mandate to promote maximum sustainable economic growth as well as stable prices, Fed policymakers must be constantly vigilant. When the economy gathers strength and overcomes a ‘soft patch’ or recession, inflation concerns typically become more pressing.

Though inflation pressures have risen somewhat in recent months, longer-term inflation expectations appear to have remained well contained. I believe that, while underlying inflation is expected to continue to be low, the Federal Reserve must be more alert to monitoring incoming data, and continue to remove policy accommodation at a measured pace, consistent with the incoming data and its commitment to maintain price stability.