×

Fed shouldn't focus on potential market tantrum: Fmr Fed gov

Former Fed Governor Bob Heller said Monday the central bank should not shy away from a rate hike because of a possible market tantrum.

Traders tracked by the CME still only see a 26 percent probability of a rate hike in June, despite signaling from the Federal Reserve that it may raise interest rates if second-quarter economic growth picks up.

"The Federal Reserve should be focused on its goals. Long-term price stability is the most important one as well as increasing economic growth, lowering the unemployment rate and we are there right now. Policy should roughly be at normal," Heller said on CNBC's "Squawk on the Street."

"It's a children's game almost. We want to avoid a tantrum. Who throws tantrums? Two-year-olds throw tantrums," he said.

"Does that mean that the parents should stop disciplining them, letting them do whatever they want to do? Give them all the candy they want to have? No."

David Kelly, chief global strategist at JPMorgan Asset Management, told "Squawk on the Street" that the market is still complacent and that this could lead to a negative surprise on the back of a June rate hike.

"The market just doesn't believe the Fed will pull the trigger. This is the Fed that has cried "hawk' so many times, promised to maybe raise rates so many times, that now when you see this concerted effort among Fed officials to raise expectations of a June increase, I think the market hasn't quite bought it yet," Kelly said.

"So, there may be a surprise in June if the Fed finally follows through here and that could be a little negative for the bond market," he said.