US Economy

Bill Daley: Response to Fed rate hike could be 'dramatic'

Dec rate hike could be dramatic: Daley
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The Federal Reserve could create a bigger splash than some market watchers think if the central bank's policymaking committee raises interest rates next month, former White House Chief of Staff Bill Daley said Tuesday.

"Some people think it's baked in, a response is already baked in, people expect it. I'm not sure. I think the reaction will be a little bit more dramatic," the former Obama administration staffer told CNBC's "Squawk Box."

Daley, who was commerce secretary under Bill Clinton, now heads the U.S. operations for Swiss hedge fund Argentiere Capital.

If an initial 25-basis-point rate increase causes an over-the-top market reaction, it may create the impression the U.S. economy is in worse shape than people think, Daley said.

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"We're healthier than anybody else in the world, but is that saying a lot? We'll find out at least what the Fed's opinion is pretty soon," he said.

The central bank's Federal Open Market Committee meets Dec. 15 and 16. The CME's FedWatch tool, which measures the market's expectation for a change in U.S. monetary policy, puts the chances of a December rate hike at 48 percent.

Bill Daley
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Some market watchers had expected the FOMC to raise rates in September, but the committee held off, citing concerns about weakness overseas derailing the U.S. recovery.

Daley said people now expect a rate hike because the FOMC dropped that language from a statement following its October meeting.

"I don't know what happened in the world economy in the last 30 days. It didn't seem to change that dramatically," he said.

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The Fed may have missed its opportunity to raise rates in June, Daley said. However, he noted that the Fed has held rates low largely due to the failure of Congress to enact pro-growth legislation.

"Their inaction is a result of Congress not getting its act together — with the administration, I'll concede that — to get a plan done that really begins to move the economy."

Daley said Congress must work with President Barack Obama to reform the tax code, invest in infrastructure and create an education system prepared for a new economy.