If Oil Is Causing Inflation, What Can Fed Really Do?

Nor would many others, as the fed fund futures are not anticipating a rate increase at least until later in the year.

Elmendorf says the Fed instead will focus this year on preventing a wage-price spiral in which income tries to keep up with expenses, which can result in stagflation.

"I don't expect them to raise rates this year. Actually I think they will wait until the beginning of next year," he says. "They will say in their statement that they're worried about inflation. My guess is they will say the economy is slow enough and inflation is slowing and that will let the Fed wait until next year to raise rates."

But if Farrell had his way, there would be at least two rate hikes before the year is out.

"What we need to do is 1) destroy demand, which high prices (are) starting to do; 2) defend the dollar to contain the rate of inflation," he said. "What we need is some action, we need some leadership."