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Stocks shouldn’t sweat the Fed: LaVorgna

Stocks shouldn't fear Fed hike: LaVorgna

It's one of the biggest issues clouding the outlook for stocks in 2015: The Federal Reserve's coming move to increase the federal funds rate. But according to Joseph LaVorgna, chief U.S. economist at Deutsche Bank, investors really shouldn't sweat the coming move.

Ever since December 2008, the Fed's target on its key federal funds rate has been zero to 0.25 percent. This key interest rate (which is the risk-free rate at which institutions lend to each other) has a powerful impact on the inflation outlook and the overall economy, and the central bank's targeting of it has been seen as very useful in the aftermath of the financial crisis. However, the Fed is preparing to finally lift its target on the rate, with many market participants expecting that such a move will come in June 2015.

LaVorgna is in that camp, but he isn't with the market participants who call that a cause for concern.

"A lot of rate hikes will be an issue—but a few, not at all," LaVorgna said Thursday in a phone interview. "It will emphasize that things are actually better. If the economy doesn't weaken, it will be a real sign of confidence that the economy can stand on its own two feet."

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U.S. Federal Reserve Chair Janet Yellen attends a conference of central bankers hosted by the Bank of France in Paris, Nov. 7, 2014.
Charles Platiau | Reuters

The economist actually paints a very rosy picture about what 2015 will bring. By the end of that year, he predicts that GDP growth will be slightly above 3 percent, unemployment will be below 5 percent and inflation will be increasing.

In short, "the economy will look better," he said Thursday on CNBC's "Futures Now." "And we'll be happy the Fed is finally raising rates."

Similarly, in a Wednesday note, Goldman Sachs strategist David Kostin predicted "a benign equity market reaction to the first Fed rate hike."

Still, even though Kostin doesn't expect the bout of volatility many are calling for, he does predict that "multiples will compress" as GDP grows, leading to "low volatility, low dispersion and low stock returns in 2015."

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