Deutsche Bank: Here's Why The Fed Should Hike Rates

• Since the Federal Reserve lowered interest rates to 0 percent on December 19, 2008, the SPDR S&P 500 ETF Trust SPY is up 120 percent.
• Deutsche Bank's Head of Research David Folkerts-Landau said in a note today that the time for 0 percent interest rates is over.
• Folkerts-Landau argued that the total "economic picture" says that it is "no longer appropriate for the Fed to be so far away from neutral in both its policy rate settings and its balance sheet policy."

• Since the Federal Reserve lowered interest rates to 0 percent on December 19, 2008, the SPDR S&P 500 ETF Trust SPY is up 120 percent.
• Deutsche Bank's Head of Research David Folkerts-Landau said in a note today that the time for 0 percent interest rates is over.
• Folkerts-Landau argued that the total "economic picture" says that it is "no longer appropriate for the Fed to be so far away from neutral in both its policy rate settings and its balance sheet policy."

Wall Street economists are mixed on their expectations for what the Fed should do when it meets this week. Yesterday, Goldman Sachs said that the Fed would wait until December before raising interest rates. Today, however, Deutsche Bank economists strongly disagreed. The bank's head of research, David Folkerts-Landau, pointed to the U.S. economy's performance as evidence that the Federal Reserve should not maintain extraordinarily low interest rates any longer.

Notably, Deutsche Bank dismissed concerns of global growth, noting that there are "some" emerging market economies that are "vulnerable," but that global growth prospects have not materially declined – at least not enough to impact U.S. growth. Further, the economists said that inflation, which is nonexistent, is "being held down only temporarily by the strong dollar" and decline in commodity prices.

And Deutsche Bank said that there are lags between monetary policy changes and the desired impacts, meaning that the Fed risks falling behind if it postpones action again. "Having to tighten more aggressively down the road to keep inflation at bay could be far more disruptive to the US and global economies than beginning the process sooner," Folkerts-Landau said. He added that the costs "will not be apparent immediately," but will instead mount over time.

If the Fed does delay, Deutsche Bank recommended that the Fed not put off an increase beyond the October meeting at the latest.