The Federal Reserve has spent months pushing back expectations for its next interest rate increase, but it risked "shocking" consequences if it admitted outright that a hike wasn't coming this year, an analyst said.
Michael Every, head of financial markets research for Asia Pacific at Rabobank, told CNBC's "Squawk Box" that the consequences of telling the market that hikes were off the table this year would be "quite shocking."
While the initial reaction would be a weaker dollar and significant rally in most risk assets, the Fed would be boxing itself in longer term, he said.
"It effectively would be locked into a paradigm where we can't ever really raise rates," he said.
The Fed last increased interest rates in December, its first hike since 2006. That raised the Fed's target rate to a range of 0.25 to 0.5 percent. Since then the Fed has pushed back expectations for both the timing and the quantity of its rate hikes as the global economy has faced fresh risks, including emerging market turmoil and the Brexit vote.
Now, Every said, to admit that hikes were off the table for 2016 would effectively be an admission that monetary policy had become ineffective.
"We know what underlying problems we have in the global economy: Far too much of it is ice-cold, pockets of it are red hot. And we effectively would be saying monetary policy can't do anything to make the colder parts warmer and it's not prepared to do anything to make the hotter parts colder," Every said. "That's going to make it extremely unstable."
Every expected such an admission would spur some markets into "absolutely overheating and probably ending very messily as a result."
He noted that the market expected the Fed would likely hike rates again this year, even though the Fed futures indicated that only a 50 percent chance was priced in currently.