Fed Must 'Signal Confidence' by Raising Rates in June: Strategist

NEW YORK ( TheStreet) -- A June rate hike would be the ultimate confirmation that the economy is on a strong footing, one market strategist says. "The central bank really needs to be firm and signal confidence to the marketplace and raise rates, even if it's just marginally -- by 25 basis points," said Kevin Kelly, chief investment officer at Recon Capital Partners. "We can't stay here at near zero forever, and I think everyone is going to want the Federal Reserve to do something by June." The Fed funds rate has remained near zero since December 2008. The Fed maintains its vague stance on the matter, saying it will remain "patient" in normalizing policy. Investors await clues in Wednesday's Federal Open Market Committee minutes, which detail the central bank's most recent meeting on Jan. 28. Equities investors fear higher rates, which make returns on investments outside of the stock market more attractive. The consensus for a rate hike among economists points to June 2015. In recent weeks, some argued the Fed needed to delay its policy shift to September, or hold off altogether in 2015. The dollar is strengthening amid economic woes in Europe. Once the Fed raises rates, the dollar is expected to strengthen even further, potentially posing more of a headwind for stocks. A stronger greenback makes stocks more expensive for foreign investors. That's why the Fed is in a difficult position. Failure to raise rates may give the wrong impression -- that the economy can't stand on its own two feet without central bank intervention. But bumping rates higher could put too much upward pressure on an already-strong dollar. Still, a stamp of approval from the Fed may just be what investors are yearning for. "I don't think [a rise in rates] will topple markets," Kelly said. "Instead it will lend credence to what's happening in the U.S., which is growing, especially in the labor market." Must Read: How Will Federal Reserve Policy Affect U.S. Stocks in 2015? --Written by Scott Gamm in New York. Follow @ScottGamm // 0;if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src="//platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs"); // ]]>

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