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JPM's Kolanovic: Fed may turn the market from water to ice

Even if the Federal Reserve moves gradually on raising interest rates, that doesn't mean the markets will, one famed strategy expert told CNBC.

In his television debut, JPMorgan's Marko Kolanovic, told the "Fast Money" traders what to expect from Wednesday's Federal Reserve meeting into 2016. He said the Fed decision might be like water turning to ice.

"When you gradually decrease the temperature below freezing point, a complex system does not have to respond gradually," Kolanovic said. "You could actually have a big risk-off event if the pace of the hike is too fast."

The largest market risk in 2016 is related to the expected increase of interest rates in the U.S., Kolanovic, who is global head of quantitative and derivatives research at JPMorgan, wrote in a new report. Kolanovic is known for his seemingly magical accuracy, and was dubbed the "Gandalf" of the market by Bloomberg.

Kolanovic said if the market does freeze up after the FOMC meeting, he expects equities and some commodities to go higher and the dollar going lower, based on his analysis of the options market.

"Basically, if you have a big shock to the system, the market cannot just absorb a shock," Kolanovic said. "That is a problem that I think is going to be an issue potentially for events like tomorrow, but also over the next year. In 2016, we'll see higher market volatility and the lack of market liquidity will actually push volatility higher."

In his report, Kolanovic called 2016 the start of the "Great Mean Reversion" in which "value" assets will outperform "momentum" assets, where momentum assets are ones that have positive recent performance and value assets are those whose price is below what is implied by some valuation model.

He told CNBC the current valuation spread of these assets is at record levels not seen since the technology bubble.

"We are sort of about three or four years into this type of momentous rally," Kolanovic said. "If you look back, historically, we do find that these run out of steam after three or four years, and you find reversion eventually happens. So we think it will happen."