Wages need to break out of their slump. "We will be looking at wage growth" as a signal of inflation though "I wouldn't say either that that is a precondition to raising rates."
There is plenty of anecdotal evidence from the likes of Target Corp. and Wal-Mart Stores Inc., for example, that wages are edging higher. Yet there's not much support in the data. Average hourly earnings rose just 2 percent over the past year through February. That is in line with the average since the recession ended in June 2009.
4. Inflation expectations
What households and investors expect inflation to be in the future has to rise a bit. "We'll be watching inflation expectations." For one thing, "market-based measures" of expectations are too low. "If they were to move up over time, that would probably serve to increase my confidence."
The measure that looks at inflation expectations five years from now fell as low as 1.75 percent in January. A move back to 2 percent would add to confidence.