May 23 2016

The Fed may surprise markets in June: Strategists

The market is underestimating the Federal Reserve's willingness to hike interest rates at its meeting next month, strategists told CNBC on Monday.

"We think chances are higher than what market probability is currently," Kristina Hooper, U.S. investment strategist at Allianz Global Investors, told CNBC's "Squawk Box."

"We think there's a potential for negative surprise."

The market currently believes there is just a 4 percent chance the Fed will move in June, according to the CME FedWatch tool, which tracks 30-Day Fed Fund futures prices.

While the weakening U.S. dollar has eased the path to higher rates, Hooper said the Fed is still concerned about the market's reaction to a June hike because expectations are so low. She said the Fed should be talking up an increase if indeed policymakers plan to deliver one.

Hans Olsen, global head of investment strategy at Stifel Wealth and Investment Management, said consumer and business activity and small business confidence suggest the U.S. economy will avoid a recession in the near term.

"That should be off the table, which means, I would think, that every Fed meeting should be a live meeting," he told "Squawk Box."

Asked why the U.S. 10-year Treasury yield is only 1.7 percent if that is true, he said the market simply doesn't believe the Fed could raise rates at any meeting.

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