“I can’t go anywhere in my district and have people not ask me about inflation” in items including gasoline, groceries and paper products, Hoenig said to reporters today in Washington. The Fed needs to “calm inflationary fears” by raising interest rates, and “if we don’t do that, then I think they will build over time,” he said.

Federal Reserve Bank of St. Louis President James Bullard said it’s “reasonable” to expect the central bank will begin tightening by the end of 2011 in order to get ahead of inflation, the Wall Street Journal reported.

“We’ve got to start taking some steps to start to tighten monetary policy as we continue on through 2011 to make sure we don’t allow inflation to get away from us,”

[O]ne of the key things that we'll be looking at will be inflation expectations, because if medium-term inflation expectations remain well anchored and stable, so that firms at not passing on, at least on an ongoing sustained basis, these higher costs into broader prices and creating a broader inflation in the economy, as long as inflation expectations are well -- well stabilized, that won't happen. Then we'll feel more comfortable just watching and waiting and seeing how things evolve.

"I fully expect I will be at the front of the pack for advocating for tightening but you don't tighten until you have stopped loosening and we are still in the loosening process," Fisher told reporters.

Fisher, who has criticized the Fed’s asset purchase program and expressed concern about rising prices, said the central bank has “successfully fought off” deflation.

“There is a lot of liquidity in the system,” Fisher said.

"There are two things: the size of the adjustment will be a factor, and the duration before we introduce the adjustment will be a factor," Hoenig said. "I think the smaller, the sooner, then you get expectations generated and you get people thinking, 'I'd better match my assets and liabilities because if I don't I'm going to find myself in trouble.'"

[W]e’re underrunning both our inflation objective and our employment objective—both call for monetary policy accommodation.

“I’ll be surprised if I’m advocating a tightening in policy” this year, Federal Reserve Bank of Chicago President Charles Evans said. “I certainly think strong policy accommodation continues to be appropriate because the unemployment rate is 8.8% and inflation continues to be low, certainly on an underlying basis,” the official said.

He added “as long as year-over-year underlying inflation, core inflation, is 1.5% or lower, I am extremely doubtful we need an adjustment in monetary policy.” He noted 2% is where he believes inflation should be, and explained “as we get up toward 2%, we would want to make some adjustments to policy.”

As reported by Dow Jones

If that forecast [of gradual recovery over the rest of the year] turns out to be the right forecast, then it certainly is not inconceivable to me that we would have to take our foot off the accelerator before the end of the year.

"We have an ultra-easy, uber-easy monetary policy in the U.S. and we have to think of how we are going to exit from this policy in a way that keeps inflation low and stable,” Bullard said.

“I do think the economy has come in stronger than we anticipated at the time of the November decision to embark on” the bond purchases, Bullard told reporters.

We can exit and will exit when time comes but that doesn't mean that exit is close at hand.

[T]he surge in commodity prices over the past year appears to be largely attributable to a combination of rising global demand and disruptions in global supply. These developments seem unlikely to have persistent effects on consumer inflation or to derail the economic recovery and hence do not, in my view, warrant any substantial shift in the stance of monetary policy.

[I]t is clear that we cannot be complacent about the stability of inflation expectations, and we must be prepared to take decisive action to keep these expectations stable. For example, if a continued run-up in commodity prices appeared to be sparking a wage-price spiral, then underlying inflation could begin trending upward at an unacceptable pace. Such circumstances would clearly call for policy firming to ensure that longer-term inflation expectations remain firmly anchored.

We’re probably going to have excess slack in the U.S. labor market at least through the end of 2012, and that’s one reason that colored my view that we shouldn’t be overly enthusiastic about tightening monetary policy too early.

As reported by Bloomberg News

Dudley said that while the effect of higher oil prices on monetary policy depends on the circumstances, the rise in those prices had led to the U.S. economy losing "a little bit of momentum over the past two months."   The rise in oil prices is "a negative for the growth outlook because it does crimp real incomes and it will probably have some effect on consumer confidence," Dudley added.

As reported by Dow Jones Newswires

There are perceptional risks, for example. Our duty is most distinctly not to monetize―or even be perceived as monetizing―the debt of fiscally imprudent government. Throughout the history of nations, monetizing the budgetary excesses of governments has proven to be a direct path to economic perdition. Having already peeked inside that door, I feel strongly that we must now shut it, lock it and throw away the key.

...

Continued accommodation presents significant risks. In my view, no amount of further accommodation by the Fed would be wise—either by prolonging or “tapering off” the volume of purchases of Treasuries past June, or adding another tranche of large-scale asset purchases. Indeed, it may well be that we should consider curtailing what remains of QE2.

Now, we at the Fed are nearing a tipping point. Just as we pressed on in doing our duty through extraordinary, exigent measures, we must now discipline ourselves to just as persistently normalize our operations in a timely way.