For 10 years, the Federal Reserve has stalked its prey — inflation — but has mostly come up empty. Now that it has caught up to its goal, the question is what will happen next, and the answer isn't obvious.

Core personal consumption expenditures, the central bank's preferred inflation gauge, rose to 2 percent in May, matching the Fed's long-run target. That's the first time that has happened since a five-month period that ended in April 2012, and marks a possible milestone in the effort to normalize policy from its extreme crisis-era accommodation.

On the surface, the climb to 2 percent would indicate a clear path for the policymaking Federal Open Market Committee to continue on its trajectory of slow, steady rate hikes. However, the calculus will remain difficult for officials as they seek to divine whether the economy is on the cusp of breaking out, or on the road to recession.

"They're going to likely continue to raise rates and lower the balance sheet," said Joe LaVorgna, chief economist for the Americas at Natixis. "That seems to be their M.O., which is a mistake."

FOMC members indicated at their meeting earlier in June that they were likely to increase rates twice more in 2018 — in September and December — and three more times in 2019. That comes amid an operation to shrink the size of the bond portfolio the Fed keeps on its $4.4 trillion balance sheet.

LaVorgna favors the balance sheet reduction but thinks the Fed should slow down on the rate increases. Markets have been restless with the ramped-up schedule of rate hikes.

The has fallen 4 percent since the June 12-13 FOMC meeting. At the same time, the benchmark 10-year Treasury yield has fallen from near 3 percent to about 2.84 percent, while the two-year yield has edged higher to 2.53 percent, sparking worries that the two might invert and trigger what has been a classic recession signal.