US Economy

Fed rate hike will spur economic growth: Economist

Rate hike spurs economic growth: Pro

The Federal Reserve's anticipated interest rate hike will spur economic growth by forcing executives and consumers off the fence, UBS economist Drew Matus said Thursday.

"If you raise interest rates, it actually puts a value on ... time, and so people can't wait as long as they would normally wait. They have to make decisions with imperfect information," Matus said on CNBC's "Squawk on the Street."

The Fed has kept its benchmark interest rate near zero since December 2008.

"If you leave rates at zero indefinitely, then people just wait indefinitely," he said.

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Investors should be aware that the Fed may have to raise rates more aggressively than policymakers have indicated and beyond what the market has priced in, Matus added. That is because central bankers typically have to play catch-up as trends in unemployment, inflation and wages emerge, he said.

The Fed has said it will raise rates when data indicate the U.S. economy is on sure footing.

On Thursday, the National Association of Realtors reported that pending home sales rose to a nine-year high in April. If people are willing to buy a home, they are probably willing to spend elsewhere, said Matus, UBS' deputy chief U.S. economist.

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"I think it all feeds back from the labor market. The labor market is doing well, people are finding work, firms aren't laying people off," he said. "The only thing missing right now is wages and that will be coming soon. I think every one can sense that, and that's why you're seeing this kind of activity."

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Fidelity Investments' Jurrien Timmer took a more neutral view, saying an interest rate increase would be "fairly benign for the economy at large," as long as rates rise gradually and markets do not react adversely. That outcome assumes the Fed raises its benchmark 100 basis points during the course of a year to 18 months, and corresponding bond yields rise at the same pace.

Meanwhile, global reflation is picking up at at robust clip as Europe, Japan and China continue stimulus measures, he added.

"That's a pretty powerful tailwind and it should boost growth globally in the coming couple of quarters at least," he said.