The economy is doing so well it could be the Fed's next problem, strategist says

Federal Reserve Chairman Jerome Powell and the rest of the Federal Open Market Committee hold a two-day meeting this week, and the chances they exit without raising the fed funds rate is near zero.

The question then becomes how soon until the next hike, says Bob Doll, chief equity strategist at Nuveen Asset Management.

"The economy is doing really well, and I'm worried that could we get to the point … where the concern is going to be more about the economy overheating than recession," Doll told CNBC's "Trading Nation" on Friday. "I'm not suggesting that's where we are, but I think we need to ask the question."

U.S. economic conditions have steadily improved this year as the labor market has tightened, wage growth has picked up speed and tax cuts have boosted profits. Growth in the GDP has reflected those improvements.

"Second-quarter nominal GDP was well into the 5s. Could it be over 6 percent nominal in the third quarter when it gets reported?" Doll asked. "All of that, we'd say 'Oh my goodness, are we beginning to have an economy that's too strong?'"

Nominal GDP, which includes inflationary price changes, rose by 5.4 percent from April to June. Real GDP increased by 4.2 percent, its strongest pace since the third quarter of 2014.

Powell's statement on Wednesday could give some insight into how quick the Fed will raise rates in response to economic strength, says Doll.

"Is he going to be concerned and show a dovish hand by talking about concerns outside the U.S.? I doubt he'd use the reference to emerging markets, but that would be implied," he said. "Does he go the other way and say, 'My goodness, the labor market is getting tight, we've got year over year wages up to 2.9 percent. We've got to worry about that side?'"

Faster economic growth and increased inflation would push the Fed to raise rates at a more aggressive pace than anticipated. Markets are pricing in another 25-basis-point hike on Wednesday, its eighth of this tightening cycle, which began in December 2015, according to CME Group fed funds futures. Another could come as soon as December.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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