How Much Inflation Will The Fed Tolerate?

Investing.com - Now that inflation is near the Federal Reserve's target rate for the first time in years, the big question is whether the central bank will tolerate a move above that threshold.The core personal expenditures index, the Fed's preferred inflation gauge, rose to a 1.9% annual rate in March, just shy of its 2.0% target. Other inflation measures are slightly higher. "I think they will not mind seeing it get above 2%," says Bill Baruch, president of Blue Line Futures. "They don't want markets to fear a fourth hike this year just because inflation is above 2%."The majority opinion on Wall Street is still three interest rate hikes in 2018.Going forward, however, there are two wild cards for the central bank.The first is the massive tax cut package and how long that takes to percolate through the economy.The second is oil prices, which are near a four-year high, and, analysts say, are capable of hitting $100 a barrel, under the right set of circumstances.Alone or together, they could force the Fed's hand.