“The Fed will tolerate an inflation overshoot unless the bond market reacts very negatively to it,” said Joachim Fels, a global economic adviser at Pacific Investment Management Co.
He said that shouldn’t happen as long as the Fed is able to reassure investors that it is sticking with its gradual rate path as price pressures build.
The chatter about inflation potentially breaching the Fed’s goal is taking place against the backdrop of a brewing debate among policy makers about the continued usefulness of their 2 percent objective.
Those ongoing discussions could make officials more inclined to accept an overshoot in the short-term as they thrash out what to do in the longer run, said Cornerstone’s Perli.
This article was provided by Bloomberg News.