My view of the future permits a degree of patience as regards monetary policy. There is still a halting and fragile quality to the economy. I think the process of restoration of full economic strength with higher employment continues to require support. That said, planning for an eventual change of course is completely appropriate as long as public discussion about planning deliberations and the plan itself don't create premature expectations of tightening.

I think rate hikes by year-end are certainly a possible outcome at this point given what we see in the momentum in economic growth and given how the inflation risks seem to have evolved.

“My personal predilection would be to get out of the MBS market as soon as possible,” Lacker said to reporters. “I think the housing finance market can easily withstand a substantial liquidation of our MBS holdings.”

I wouldn’t rule it out entirely, but at this stage I personally am not leaning in the direction of thinking [raising rates by year-end] is absolutely required.

I don’t think we reverse that commitment [to complete our asset purchase program by the end of June] or change that commitment without some very compelling reasons to do so. I don’t see those conditions existing at this time. My outlook also doesn’t anticipate such a rapid change in conditions that a change in policy is required at this time.

“I think my take on inflation right now is that we are indeed seeing some increases, obviously,” Bernanke said. He attributed them to “global supply and demand conditions.” But he reckons these prices “will eventually stabilize.”

“I think the increase in inflation will be transitory,” Bernanke said. But we added: “we have to monitor inflation and inflation expectations extremely closely because if my assumptions prove not to be correct than we would certainly have to respond to that.”

From the audience Q&A, as reported by the Wall Street Journal

It’s quite likely that $600 billion could be about the right number.  I thought going into the asset-purchase program that we might need to do more than $600 billion eventually, but $600 billion was a good start.

“It wouldn’t surprise me if we need to act before the end of the year,” Lacker said today in a CNBC television interview. “Inflation is the bigger risk this year. That is what you have to keep your eye on.”

Lacker said tightening policy could include deciding not to reinvest proceeds from maturing mortgage-backed securities, selling assets and raising the Fed’s target interest rate from near zero. He said both asset sales and interest rate hikes “could be warranted this year.”

“The exact sequence of that is something we are hashing out and trying to think through,” Lacker said in the televised interview, adding “I haven’t made up my mind yet” on whether the Fed should reduce its plan to purchase $600 billion in U.S. Treasuries through June.

“I think it deserves very careful reconsideration,” he said.

As reported by Bloomberg News

Moreover, the rise in commodity prices is likely to put further upward pressure on headline inflation in the coming months. Provided commodity prices level off around current levels, the effect on inflation should be transitory. But we will need to ensure that commodity price pressures do not cause inflation expectations to become unmoored. If that were to occur, it would be more difficult to keep inflation in check.

To sum up, economic conditions have improved in the past year. Yet, the recovery is still tenuous. And, we are still far from the mark with regard to the Fed's dual mandate. In particular, the unemployment rate is much too high.

If you consider monetary policy was appropriate at the end of 2010 ... and then you see core inflation go up by 50 basis points over the course of 2011 ... the usual response that we know from 20 years of thinking about monetary policy (or even more) is to raise the target rate by even more than that increase in observed inflation," he said, according to the report. "So that means you should be raising the target rate by more than 50 basis points.

 [Kocherlakota] said he expects core inflation to rise to about 1.3% by year end, so raising the Federal funds rates by more than half a point late this year is "certainly possible."

I haven’t made up my own mind yet [on the appropriateness of a reduction in our asset purchases]. I think it is worth reexamining. The flow of data since December has kind of made it even more worth reexamining.

I don’t think tinkering with the timing [of the end of the current LSAP campaign] is nearly as important as the amount.

As the United States continues to ease policy into its recovery, once again there are signs that the world is building new economic imbalances and inflationary impulses. I would suggest also that the longer policy remains as it is, the greater the likelihood these pressures will build and ultimately undermine world growth.

Today, my view has not changed. The FOMC should gradually allow its $3 trillion balance sheet to shrink toward its pre-crisis level of $1 trillion. It should move the U.S. federal funds rate off of zero and toward 1 percent within a fairly short period of time. Then, after evaluating the effects of those actions, it should be prepared to move the funds rate further toward a level that could be reasonably judged as closer to normal and sustainable.