The Federal Reserve is willing to allow inflation to exceed its target in exchange for lower unemployment, Guggenheim Partners Chief Investment Officer Scott Minerd said Wednesday.
Minerd asserted the Fed's 2-percent inflation target is an average, not a ceiling. "We could have an overshoot to 3 percent or so, and I think they would welcome it," he told CNBC's "Squawk on the Street."
Members of the Fed's policymaking committee last week indicated they expect to raise rates twice this year. At the December meeting, they suggested they would hike four times. The revision brought Fed expectations for interest rates closer to Wall Street's outlook.
"The Fed is clearly in the process of falling behind the curve," Minerd said. "I think that the old trade-off between inflation and unemployment is something that a lot of the members of the committee are willing to live with."
The Fed's revised expectations for interest rate tightening raises inflation concerns, and investors should plan accordingly, Kristina Hooper, U.S. Investment Strategist at Allianz Global Investors, said earlier Wednesday.
"We want to be focused on inflation hedging strategies like TIPS just because there is that potential for inflation to creep in," she told CNBC's "Squawk Box."
TIPS, or Treasury Inflation-Protected Securities, adjust with changes in the Consumer Price Index to protect investors against rising inflation, which can decrease the value of interest yielded by bonds.
Keeping rates low usually supports economic activity, but they can raise the risk of higher costs.
Inflation in the United States in January was the strongest in nearly 4½ years, and it ticked up more than expected last month.
"The Fed has certainly come closer to the market than the market coming closer to the Fed, but we're seeing solid economic data in the U.S., and we need to follow that closely," Hooper said.
The difference between the Fed and the market's rate expectations may have narrowed in the near term, but in the longer term, the gap remains wide, said Karin Kimbrough, head of macro and economic policy at Merrill Lynch Wealth Management.
"You go further out and there's still a big distance between what the market is pricing in, which is maybe only another rate hike in 2017, and at the same time, the Fed is saying they're going to be doing even more," she told "Squawk Box" on Wednesday.
On Tuesday, new Philadelphia Fed President Patrick Harker said the Fed should "get on with" hiking rates, joining three other regional Fed presidents who are pushing for a quicker pace of monetary policy tightening. Only one of those presidents, Esther George of the Kansas City Fed, is a voting member on the Federal Open Market Committee.
Markets tend to focus more on the core members of the FOMC, including Chair Janet Yellen, Vice Chair Stanley Fischer and New York Fed President Bill Dudley, said Jeff Rosenberg, chief investment strategist for fixed income at BlackRock, in a "Squawk on the Street" interview.