Fed should focus on US strength, not Russia: LaVorgna

Economy strong, opportunistic time to invest: Pro
Economy strong, opportunistic time to invest: Pro   

The Federal Reserve should not worry about debt concerns abroad and should instead focus on the strength of the U.S. economy at its Federal Open Market Committee meeting, Deutsche Bank's chief economist told CNBC on Tuesday.

Russian companies face $160 billion in dollar-denominated debt repayments in the next 12 to 18 months, raising concerns of default as the ruble plummets. The Russian central bank hiked rates 6.5 percentage points on Monday night, but the action failed to stem a rapid depreciation of the ruble against the dollar.

Plunging crude prices also worry some market watchers because a number of oil-producing nations may have trouble servicing their debt.

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Deutsche Bank's Joseph LaVorgna said there is little chance of contagion because banks are better capitalized and are not as leveraged as they were during the 1998 Russian financial crisis.

The Fed should base a decision on interest rate policy on conditions in the U.S. economy, rather than financial markets, he told "Squawk on the Street."

It has become more likely that unemployment will move lower and wage pressures and core inflation will ultimately move higher, LaVorgna added, giving the Fed a reason to alert the market that it will begin to let interest rates rise.

"I hope they do it, but again, this Fed has generally aired on the side of being dovish, and they've chickened out a few times, so we'll see," said LaVorgna.

A Fed decision to remove language that it will wait a considerable amount of time to take action on interest rates is unlikely to impact equities significantly because traders widely anticipate that announcement, said Mark Luschini, chief investment strategist at Janney Capital Management.

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Recent comments by Fed Vice Chair Stanley Fischer suggest that the central bank is ignoring what is happening abroad, he told "Squawk on the Street." Consequently, the Fed's domestic focus gives it the cover to remove dovish language and hint that expectations for rate hikes beginning in mid-2015 are appropriate.

The current downturn in stock prices should be viewed optimistically as the U.S. economy shows signs of strengthening, said Luschini.

"We still believe equities six to 12 months out are going to be a far more rewarding experience for investors than bonds or cash," he said.

Provided the U.S. does not import weak growth from abroad, equity markets should get their legs back after the New Year if not before Christmas, Luschini said. While the strong dollar and suppressed growth overseas are cause for concern among multinationals, U.S. corporate profits ought to remain reasonably healthy in light of the domestic situation, he said.