At the August meeting..., the Committee decided to pause—to "step off the escalator" and wait a while to see how the previous funds rate increases and other influences on the economy were playing out. Since then, there have been further signs of slowing, and at the September meeting, the Committee again decided in favor of a pause—to "stay on the landing," so to speak, leaving the funds rate at 5¼ percent.

[T]he outlook for inflation depends on why you think inflation has trended up in the last two years. I see two inflation scenarios as being plausible and each has different implications for monetary policy. In the first scenario, inflation is elevated mainly due to transitory factors – like the pass-through of higher oil prices.  If oil prices stabilize, we’d expect to see core inflation fall…

In the other scenario, stimulative monetary policy during the last five years has been a major contributor to the rise in core inflation. In this case, we would not expect to see a deceleration in core inflation until monetary policy has firmed enough to take out the cumulative effects of the accommodation…  Thus, to my mind, there remains some risk that policy is not yet firm enough to ensure a return to price stability over a reasonable time horizon.

I think that the risks to my outlook for economic activity may be skewed a bit to the downside, while those to my forecast of gradually declining inflation are tilted to the upside. In my view, in the current circumstances, the upside risks to inflation are of greater concern.

[T]he Federal Reserve has returned short-term interest rates only to more-normal levels and long-term rates are unusually low relative to those short-term rates. This situation stands in sharp contrast to some past downturns in the housing market that followed actions by the Federal Reserve to tighten credit conditions significantly.

Don't sell the Fed's inflation concern short.

During the Q&A session.

We have moved policy from a very accommodative level of a 1% fed funds rate to 5.25%.  This I judge as modestly restrictive.  It's not tight, but modestly restrictive.

From the Q&A session, as reported by Bloomberg News

Whether the August decision to hold the target funds rate unchanged will turn out to be a pause in the process of raising rates, a longer-lasting stop or even the peak, will depend on the economy’s evolution in coming months.

The economy appears to be on a pretty stable course.  Unless we get some large shocks, it is likely that policy adjustments will be relatively modest.

From the Q&A period, as reported by Bloomberg News. 

The FOMC left its monetary target—the fed funds rate—unchanged last week at 5.25 percent. I accept that decision. While the inflation risk I have just elucidated is very much on my mind, it is my considered judgment that the recent tempering of U.S. economic growth to a more sustainable rate, combined with the lagged effects of our 17 prior quarter-point rate increases, should act to lower the inflation rate over time. However, if this proves not to be the case, appropriate action will have to be taken.

Taking all of these factors into account, my assessment is that the risk of inflation remaining too high is greater than the risk of growth being too low. Thus some additional firming of policy may yet be necessary to bring inflation back into the comfort zone within a reasonable period of time.

We're going to have to apply all of our analytical skills and our judgment to this decision...[My stance is] 50-50...I'm still totally noncommittal. [Bloomberg]

The lags between policy actions and their effects imply that we must be forward-looking, basing our policy choices on the longer-term outlook for both inflation and economic growth. In formulating that outlook, we must take account of the possible future effects of previous policy actions--that is, of policy effects still "in the pipeline." ...

...[P]olicy must be flexible and ready to adjust to changes in economic projections. In particular, as the Committee noted in the statement issued after its June meeting, the extent and timing of any additional firming that may be needed to address inflation risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by our analysis of the incoming information.

I believe a reasonable case can be made that the current stance of monetary policy is likely to be consistent with a reduction in inflation pressures over the next few quarters as energy costs moderate and economic growth slows.  At the same time, I recognize that further policy tightening could be warrented should the expected slowing in inflation not materialize.

If we’re on target with our present forecast for growth to moderate to a sustainable pace and for inflation to fall back within acceptable bounds, I would say that monetary policy is now close to where it should be.

With the economy now evidently in a period of transition, monetary policy must be conducted with great care and with close attention to the evolution of the economic outlook as implied by incoming information. Given recent developments, the medium-term outlook for inflation will receive particular scrutiny.  There is a strong consensus among the members of the Federal Open Market Committee that maintaining low and stable inflation is essential for achieving both parts of the dual mandate assigned to the Federal Reserve by Congress...Therefore the Committee will be vigilant to ensure that the recent pattern of elevated monthly core inflation readings is not sustained. Toward this end, and taking full account of the lags with which monetary policy affects the economy, the Committee will seek a trajectory for the economy that aligns economic activity with underlying productive capacity.  Achieving this balance will foster sustainable growth and help to forestall one potential source of inflation pressure.  In addition, the Committee must continue to resist any tendency for increases in energy and commodity prices to become permanently embedded in core inflation.