US Markets

Why the Fed may raise interest rates in October: Strategist

Safer to hike rates sooner: Pro
Safer to hike rates sooner: Pro

Market conditions and stabilizing economic data could lead the Federal Reserve to raise interest rates this month, JPMorgan Asset Management's David Lebovitz said Friday.

Few investors are betting the Fed's policymaking committee will begin lifting its benchmark so soon, in part because there is no press conference scheduled following its October meeting. The CME FedWatch tool—which tracks market reaction to potential changes to the fed funds target rate—showed an 11 percent chance that the Fed will hike in October.

Lebovitz said the Fed could be comfortable acting if it sees some stability in U.S. economic data.

"When I think about the Fed and the way they're going about this is it's much more about rate of change than the level that we're sitting at, and coming into that September meeting, the U.S. data was decelerating, particularly the data that's exposed to international markets," he told CNBC's "Squawk Box."

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At its September meeting, the Federal Open Market Committee left rates near zero, where they have been since December 2008. Chair Janet Yellen said the committee wanted to see further evidence of labor market improvement and progress toward the Fed's 2-percent inflation target.

She also cited concerns about economic slowdown elsewhere in the world.

Lebovitz said he believes the Fed is mostly concerned about slowing growth and monetary policy overseas because they are putting upward pressure on the dollar, which in turn puts downward stress on inflation.

He also warned that market liquidity is typically low in December, so it could be safer to hike in October. Market reactions tend to be more dramatic during periods of low liquidity.

The Fed has not historically begun a tightening cycle in December, Citi Private Bank Steven Wieting said on "Squawk Box." He added that it would be hard to imagine central bankers will get all the ingredients they want in December that were not present in September.

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The global chief investment strategist said an October rate hike is possible, but probably unlikely. Given the uncertainty around the world, he questioned how much clearer the economic picture would be for the Fed by the end of the month.

The fact that the central bank has expanded its focus beyond inflation and employment to overseas economic conditions has created uncertainty, he added.

"Unfortunately, the Federal Reserve can tell us everything about how they will react to domestic economic data, but they have this issue of elsewhere, which is completely open," he said.