Fed's next rate hike not quite a sure bet

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Instead the Fed moved to the sidelines and then in 2001 began cutting rates aggressively as the economy slowed and eventually slipped into recession. He notes that the Fed moved to the sidelines that summer even though the latest employment report had shown an increase of more than 200,000 jobs. The jobless rate was edging up at the time but still a relatively low 4.1 percent, compared with 4.8 percent currently.

"In other words, it may take less for the Fed to go on hold than is generally appreciated," he said.

But Rosenberg's view seems to be in the minority, as more forecasters come around to the view that the Fed might boost rates three more times this year, bringing the overnight federal funds rate to 5.5 percent.

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Rich Yamarone, director for economic research at Argus Research, has been predicting a 5.5 percent fed funds rate since August, so forgive him for gloating a bit as some of the more influential Wall Street forecasters come around to his point of view.

"Central bankers like to know the cork is firmly implanted in the bottle so that the inflation genie doesn’t sneak out," Yamarone said in a research note. "The worst thing a central bank can do when fighting inflation is fall behind the curve. Therefore, we are fairly comfortable with our Street-high estimate, and welcome those newcoming bulge-bracket firms aboard our bandwagon."

To Yamarone, the key factors are the surprisingly strong growth of the first quarter and rising energy prices that are threatening to spill over into more widespread inflation. The business press, he complains, focuses far too much on the "core" rate of inflation, which excludes food and energy prices.

But the Fed's statement Tuesday made clear that central bankers are watching energy prices carefully, saying "…the elevated prices of energy and other commodities have the potential to add to inflation pressures."

Yamarone said another misconception is that the Fed has been trying to cool the economy. In fact, he said the central bank has only moved interest rates from "overly accommodative" to the "neutral zone," where rates neither stimulate growth nor slow the economy.

"I think we still have a hike or two to get to then end of neutrality and one final one after that, which would be a little restrictive," he said. "And the Fed can afford to do that."

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