Why the Fed won’t hike rates 4 times in 2016: Economist

US economy 'doing better' than S&P 500: Pro
US economy 'doing better' than S&P 500: Pro   

The Federal Reserve has suggested it will raise interest rates four times this year, but market participants aren't buying it — nor should they, Chase Chief Economist Anthony Chan said Thursday.

The Fed refrained from tightening monetary policy last September in part due to stress in overseas markets and China in particular, Chan noted. As Chinese stock market volatility and the country's currency depreciations roil equities around the world once again, central bankers are poised to tighten policy less aggressively than indicated following the Fed's initial rate hike in December.

"The situation has now reverted back to China, so I think the Federal Reserve goes back into its September [mode] and doesn't raise rates by four times," he told CNBC's "Squawk Box."

For that reason, the U.S. 10-year Treasury yield shouldn't exceed 2.5 percent by the end of 2016, he added. On Wednesday, the U.S. 10-year yield hit a more than two-month low of 2.042 percent.

Many people believe the United States has decoupled from China, Chan said, noting that trade links between the two countries are not "huge." But he cautioned that a Chinese economic collapse, while unlikely, would create problems in global financial markets.

"China has huge trade relationships with a lot of other emerging economies, and so if China goes down, it hurts the other emerging economies, and pretty soon when you add up all those other emerging economies, it adds up to a significant part of the global economy," he said.

Ultimately, Chan see the People's Bank of China stepping up to tackle the country's slowdown in the same way the Fed did during the financial crisis.

"A lot of people think they can't figure it out. They will eventually figure it out," he said. "They're not going to do it overnight, but they will, and they've already done quite a bit. In the next couple of months we will see the fruits of that labor."

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