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Could inflation be the new subprime?

When Fed Chair Janet Yellen essentially dismissed inflation as a threat last week, she sought to calm investors' fears but in doing so also raised an unpleasant specter of the not-too-distant past.

To some, the central bank chief's assertion that inflation threats were coming from "noisy" data—economist talk for volatile, one-off conditions not likely to persist—sounded at least a little like her predecessor, Ben Bernanke, who in March 2007 said problems in the subprime mortgage market were "contained" and unlikely to pose a larger, more systemic threat. The subprime market, of course, was in the early stages of a meltdown that spread across the financial system and triggered the worst economic downturn since the Great Depression.

"Do not be surprised if 'noisy' is now the new 'transitory,'" Tom Porcelli, chief U.S. economist at RBC Capital Markets, said in a note to clients.

"This is part of a larger message that came through in Yellen's press conference. That is that the Fed is not setting policy based on their best guess of where they believe the economy will be, but rather where the economy has been," he added. "In other words, instead of trying to shape the economy on a forward-looking basis through monetary policy, they are instead more likely to react to largely coincident-to-lagging developments. The potential for a policy mistake and a Fed that falls well behind the curve seems obvious."

For Porcelli and other Wall Street pros who issued warnings on Yellen's blithe inflation comments, the worry is that the Fed waits too long to give at least lip service to an inflation threat and ends up having its hand forced in tightening monetary policy and raising interest rates.

Jeffrey Coolidge | Stone | Getty Images

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Bob Doll, the reliably bullish chief equity strategist at Nuveen Asset Management, included in his weekly analysis a header that sounded a lot like what Porcelli said: "The Fed May be Falling Behind the Curve."

"From our vantage point, economic growth is improving, the labor market is getting healthier and inflation is showing a modest uptick. Yet the Fed does not appear to acknowledge the changing landscape. The statement from the Fed's policy meeting last week about inflation contained the same language as its April statement. We certainly don't expect the Fed to change its stance toward monetary policy any time soon, but the Fed may be underestimating the strength of the economy, the pace of jobs growth and, most critically, the possibility of higher inflation."

To be sure, none of those who commented believe inflation at present is out of the ordinary.

The Consumer Price Index, the market's most widely followed inflation measure, is trending at a 2.1 percent annualized rate. But the Personal Consumption Expenditures gauge, which the Fed uses, is more subdued and expected to measure about 1.6 percent in May when the latest numbers are released Thursday, a number that would be well above the 0.9 percent at the previous Fed meeting in April.

The reason for the disparity is the two measures allot greater weightings to different factors, with the CPI most dependent on housing costs while health care is the main driver of the PCE measure.

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Deutsche Bank economists warned Monday that health-care costs are likely to begin to accelerate. At the same time, consumers are feeling the pinch of higher energy costs and soaring grocery prices, in particular for chicken, beef and fish. Shelter, medical and transportation services also have posted increases well above the Fed's 2 percent target inflation rate.

You wouldn't have known it by Yellen's comments, though, and that's what has economists worried.

Believing that a Fed rate hike could come well ahead of market expectations, Capital Economics summed up the fears in a report of its own:

"We don't agree with Janet Yellen's view that the recent rise in inflation is just noise. Instead, it is clear to us that a widespread strengthening in price pressures in areas as diverse as rents, medical care, clothing and new vehicles is underway. The big risk is that a larger rise in inflation than the Fed expects prompts it to raise interest rates earlier and further."

While government bond yields have been loathe to reflect inflation threats, investors have reacted elsewhere.

Gold prices, for one, have jumped about 9.5 percent this year, outpacing the 6.1 percent gain in the S&P 500 stock market index.

Bonds that protect against inflation also have performed well. The Barclays U.S. Treasury Inflation Protected Index has risen 5.5 percent so far—not as much as some other government bonds but well ahead of its three-year gains and about on par with five-year returns.

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Economist and persistent Fed critical Michael Pento believes, however, that too many investors remain sanguine about the long-term effects of policies that have sent the central bank's balance sheet past the $4.4 trillion mark.

"The bottom line here is that central banks around the world have fallen into a passionate love affair with inflation and asset bubbles. ... But the joke will be on these market manipulators and legalized counterfeiters in just a very short amount of time. Doubling down on the failed strategies of debt, inflation, currency destruction, regulations, taxes and artificially-low interest rates will soon explode in their faces once again—but only to a much great extent this time around."

Not everyone on the central bank believes the broader narrative that inflation is not a worry.

Philadelphia Fed Chairman Charles Plosser, among the Open Market Committee's most hawkish members, told a gathering Tuesday at the Economic Club in New York that the economy is growing faster than the FOMC consensus believes, meaning that policy may tighten ahead of schedule.

Read MorePlosser: May need to raise rates sooner than expected

At least some in the market are preparing for that outcome, as highlighted in a report Tuesday from David Rosenberg, chief economist and strategist at Gluskin Sheff:

"We are a tipping point, methinks, on housing jobs and inflation. And if that is the case, the Fed is so far behind the curve it isn't even funny—maybe this is the message from the U.S. dollar and gold."

—By CNBC's Jeff Cox

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