Market Overview

Investors, Economists Differ On Fed Rate Increase Expectations

Investors, Economists Differ On Fed Rate Increase Expectations

The market is nearly evenly split on the prospect of a rate hike by the end of this year, according to the CME's FedWatch Tool.

A report on CNBC citing the tool, said, "Nearly 54 percent of the market believes interest rates will remain in the current range of 25 to 50 basis points in December. Meanwhile, the odds of a September hike fell to 12 percent in the market's view."

"On Sunday, Fed Vice Chairman Stanley Fischer said the Fed was close to meeting its inflation and labor market targets," the CNBC article continued, adding, "That followed statements from Fed officials last week that indicated the central bank had not ruled out a September rate hike."

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"The market's pricing in well below what any economist or strategist is pricing in," UBS Deputy Chief U.S. Economist Drew Matus told CNBC's "Squawk Box" on Monday.

The Situation

In 2015, the Fed let it be known that it intended to raise interest rates over the following year approximately four times. However, those estimates are unlikely to be met, as 2016 has thus far seen only one hike and "concerns over eruptions in overseas markets, slowing midyear labor gains and the British vote to leave the European Union" have made policymakers increasingly hesitant.

"If you look at economists, they think there's a 75 percent chance of a rate hike in December, and then you look at the market, and they're saying there's about a 50-50 chance," Casey Clark, vice president of investment strategy research at Glenmede Trust, told CNBC's "Worldwide Exchange" on Monday.

According to CNBC, in Matus' view, the Fed's stubbornness will ultimately result in inflation increasing to a level beyond the current target of 2 percent, forcing it to raise rates.

"If that happens, the question for investors will be whether corporate earnings have recovered enough to put a floor under stock prices," CNBC paraphrased Joseph Zidle, portfolio strategist at Richard Bernstein Advisor, as saying.

"If we do have that strong dollar and if oil doesn't hold this $50 level, then yeah, I think you'd be [...] ratcheting down your earnings expectations," Zidle told CNBC.

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