Fed must close gap on rate hike expectations: JPMorgan's Guarco

The Federal Reserve must seize the opportunity Wednesday to reconcile the difference between its past statements and the market's expectation about where interest rates will be by year's end, JPMorgan Private Bank Chief Investment Strategist Philip Guarco said.

Members of the Federal Reserve have previously indicated they may raise interest rates as many as four times this year, but fed funds future markets show investors are not buying it.

The Federal Open Market Committee concludes its two-day meeting Wednesday afternoon, with a statement scheduled to be released at 2 p.m. ET, but no press conference to follow.

"They have to make a reconciliation here because the market is saying one hike, and they're still saying four hikes, so they really have to kind of close that gap," Guarco told CNBC's "Squawk Box."

That could happen later in the day because credit costs have risen dramatically since the third quarter of 2015, he said. The average yield on high-yield debt is 10 percent and capital markets are closed for many companies that once relied on noninvestment grade debt, he added.

"They've got to do something I think to loosen that up," he said.

The FOMC hiked interest rates by 25 basis points in December, its first rate increase in nearly a decade.

Investors looking to trade on the Fed news should note that markets have already improved, in part due to the perception that the policymakers must walk back their expectations for the pace of rate hikes this year, Phil Orlando, chief equity strategist at Federated Investors, told "Squawk Box."

"The rally may have already happened. It may completely be a 'buy the rumor, sell the news' kind of deal," he said.

Orlando noted that consensus estimates put fourth quarter GDP growth at 0.8 percent. At that level of growth, there is no way the Fed will raise rates in March, he said.

"They've got to wait for some improvement in the data, which is going to push them out into September, June, you know, whenever the data begins to improve," he said.

JPMorgan Asset Management global strategist Ben Mandel said he recognizes that while the Fed will likely take a slower approach, he doesn't necessarily think that the Fed will push the next rate hike out Wednesday.

"At the end of the day, this is a meeting where they don't change their policy stance and where they remain resolutely noncommittal regarding what they're going to do in March," Mandel he told CNBC's "Squawk on the Street." "This is an example where it literally will cost them nothing to say 'let's wait and see, let's be data-dependent.'"

BNP Paribas senior economist Bricklin Dwyer agreed with Mandel that the Fed is unlikely to change the course of current policy at this month's meeting.

"They'll make sure that they're on the right track before they start to defect," Dwyer said.

— CNBC's Christine Wang contributed to this report.

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