×

The case for a single Fed rate hike in 2016: Strategist

The market is coalescing around the idea the Federal Reserve will guide its benchmark interest rate higher two to three times next year, but one strategist thinks a single rate hike will suffice.

The reason: Sluggish economic momentum will cause the central bank to be less aggressive than even the Fed members themselves anticipate.

"The Fed right now, they tell us by the dot plot that they're at four. I think one is more likely than four," Lou Brien, strategist at DRW Trading Group, said, referring to the Fed's chart indicating its path of future rate hikes.

The central bank's policymaking committee raised its fed funds rate for the first time in more than nine years this month, lifting the benchmark rate by 25 basis points from nearly zero.

"We're at a stage here where the economic activity — the unemployment rate at 5 percent, et cetera — that doesn't need a zero bound, However, the economic momentum doesn't necessarily need a rate hike at this time either. So this is a very difficult situation," he told CNBC's "Squawk Box" on Tuesday.

Brien noted that three of the last four quarterly GDP figures have been 2.1 percent growth or lower, and the Atlanta Federal Reserve is forecasting economic growth of 1.3 percent for the fourth quarter. The last two years, first-quarter GDP has been weak, as well, Brien said.

He also pointed to past central bank action during periods of subdued U.S. manufacturing activity. He recalled that the Fed cut rates 15 years ago when the ISM manufacturing index fell roughly 10 points, swinging from an indication of growth to a reading of decline.

A similar fall in the ISM index over the last 16 months to 48.6 took place in November, Brien said.

Lastly, lower oil prices have so far failed to translate into significant increases in consumer spending, he said. Brien noted that the current annualized rate of growth for retail sales is about 2.2 percent, the lowest one-year rate outside of the Great Recession in the last 25 years.

"I still am scratching my head on where this extra money from the lower oil prices is going," he said.

Some of that money is certainly going to big-ticket items, Again Capital founding partner John Kilduff said on "Squawk Box," pointing to record auto sales in 2015.

Morning Squawk: CNBC's before the bell news roundup

Sign up to get Morning Squawk each weekday

Get this delivered to your inbox, and more info about about our products and service. Privacy Policy.
Please enter a valid email address