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Move over Fed, markets are calling the shots

Markets vs. the Fed

Markets continue to digest any Federal Reserve hints about a rate hike following the FOMC meeting Wednesday. Jim Bianco, president of Bianco Research says when markets want the Fed to go, is when the Fed will go.

"The Fed's too afraid of financial market reactions, so it will follow what the market wants," Bianco told CNBC's "Squawk Alley " Thursday. "The markets figured it out."

Dating back to the 80-plus meetings that have taken place since Ben Bernanke was Fed Chair in 2006, Bianco said markets have accurately priced in moves 100 percent of the time.

"If this market doesn't have a Fed hike priced in by the week of Labor Day, it's not going to happen," Bianco said. "Because the market's got a 100 percent track record right now."

Wall Street was expecting a dovish Message Wednesday. In CNBC's most recent Fed survey, Fed watchers have been expecting just one rate hike this year, and most likely in December.

Before the statement, fed funds futures showed roughly 30 percent odds of a rate hike in September and a 48 percent chance by December. The futures were unchanged after the statement, according to Justin Lederer, rates strategist at Cantor Fitzgerald.

"Right now the market is telling you, I don't care what your language was, you're not raising rates this year," Bianco said.

He said when Fed officials called May a "live meeting" but didn't hike, it threatened the credibility of central bank rhetoric.

Rate hike predictions

Michelle Meyer, head of U.S. economics at Bank of America Merrill Lynch, is among those in the December camp.

"I think September is still a hard case to make," Meyer told CNBC's "Squawk on the Street " Thursday. "Data's been better but it hasn't been particularly robust."

She pointed to potential shocks like the upcoming election, and fallout from the Brexit vote.

"I think the Fed has told us very clearly since the start of this year that they are going to be patient, they are going to be cautious, they are going to be risk averse," Meyer said. "To me I think that lines up better for a December hike."

The Fed's annual symposium in Jackson Hole, Wyoming, in August will be the next opportunity for any clues into policy, Meyer said. She's also keeping an eye on the Fed Minutes due out in a few weeks, which will reveal more about the Fed's conversation on a global level.

"That will tell us what kind of debate they had around the table," Meyer said. "What are the factors that have influenced them to say that near-term risks have abated?"

If and when the Fed hikes next, said Adam Parker, Morgan Stanley's chief U.S. equity strategist, the U.S. won't lose its appeal as an investing safe haven.

"Expectations for earnings are low, momentum's good and the U.S. looks relatively like the best place in the world to invest," Parker said.

"The biggest concern is coming from the global environment, that's where you have the relative weakness."

— CNBC's Patti Domm contributed to this piece