Fed telling market, 'Free beer tomorrow': Economist
The Federal Reserve is suggesting it could still hike interest rates in September, but it may just be trying to manage market risk in doing so, Barclays chief U.S. economist Michael Gapen said Friday.
"The rate hike soon is the Fed's equivalent of free beer tomorrow. You come back into the bar the next day and it's still free beer tomorrow," he told CNBC's "Squawk Box." "So it feeds the perception that the Fed really doesn't have a desire to move rates any time soon. They just don't want markets to get too far away from it, lest financial stability concerns rise."
At the close of a two-day meeting Wednesday, the Federal Open Market Committee did not offer investors clear guidance on when it would raise interest rates, which it has held near zero since December 2008.
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Gapen said he found a difference between the committee's written statement and Fed Chair Janet Yellen's susbsequent comments.
"The longer the press conference went on, the less confident you were that they were indeed looking to rate hikes later this year," Gapen said.
He singled out Yellen's reference to "decisive evidence," saying it sets a high bar because she did not specify exactly what that means. "Decisive evidence could easily be two solid figures on consumption in the second and the third quarter, which they won't get by the September meeting."
Barclays believes the economy is fairly solid and labor market progress will continue, which bolsters the case for a September rate hike, Gapen said.
Ed Keon, portfolio manager at QMA, said the Fed sounded more dovish on Wednesday, leaving investors to think it will push back a rate hike. However, the market is being too complacent, he said.
"I think actually the economy is doing better than most people expect, and I think that's actually starting to push up inflationary pressures, especially wages," he told "Squawk Box." "So it's my belief actually that the Fed will probably tighten in September, and they may actually have to be a little tougher than the market expects."
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As a result, Keon said he is more cautiously positioning the assets he manages, increasing his cash balance from zero percent to nearly 5 percent.
This year, investors may see a reversal of a trend that has held throughout the recovery in which stocks have done better than the economy, he added. While he expects wage growth to accelerate, the stronger dollar and higher pay will put pressure on profit growth for U.S. companies.
Keon said he is not selling stocks "massively," but instead trimming into positions QMA wants to hold.
European stock positions are presenting risk as the prospect of a deal between Greece and its international creditors looks less certain, Keon said. He still believes the parties will reach an agreement, but where he once saw those odds at 95 percent, he now thinks the chance is somewhere between 60 and 80 percent.