Who’s Right on Future Rate Hikes — the Market or the Fed?

Two or four?

While the financial markets are predicting two more rate hikes this year, many central bankers are saying the Federal Reserve may raise interest rates four more times this year.

In a CNBC interview on Wednesday, Federal Reserve Vice Chairman Stanley Fischer said the market expectations of the number of future rate hikes are “too low.” And Richmond Federal Reserve President Jeffrey Lacker said Thursday that more than four rate hikes may be needed if oil prices stabilize, the dollar stops appreciating and inflation surges.

In a press event in New York on Thursday, Schwab representatives weighed in on who they think is right: the markets or the Fed.

“We think the market’s probably much closer to right than the Fed,” said Liz Ann Sonders, chief investment strategist for Schwab.

Kathy Jones, chief fixed income strategist for Schwab, added that two more hikes is “a lot more likely” than four.

“The bond market hasn’t been buying … the optimistic Fed forecast for five years, I don’t think they’re going to start buying it this year, unless we actually see inflation pick up,” Jones said.

Jones said the Fed has been “overly optimistic” about the economy and inflation for several years.

Despite Fischer’s comments that two hikes is “underestimating,” Jones isn’t deterred.

“I think he has to go with the party line, right?” she said. “This is what the median projection show. He’s the vice chair. He did say in that interview also, ‘We meet every six weeks or so because things change.’”

(The December Median Predictions from central bankers supports the four rate hikes throughout 2016.)

Jones points out that the Fed research staff presented a study at the October Federal Open Market Committee meeting about what the real neutral federal funds rate would be longer term.