Deutsche Bank economist: Fed is committing a historic error

David Folkerts-Landau, global head of research at Deutsche Bank, said in a talk with Bloomberg earlier that sticking to the zero bound of monetary policy for any longer would be a mistake of historical proportions.

 They should have increased them, Folkerts-Landau says.

"You may think that is an arrogant statement, but remember central banks make mistakes. If I had told you in 2003 that Greenspan was wrong, you would have said that was an arrogant statement, but he was wrong. If you go back to 1925 just when we're back on the gold standard, a huge mistake. So we shouldn't be afraid to say central banks make mistakes and I think this has been a fundamental mistake. They should have gone significantly before to remove that uncertainty, to allow Capex to develop, and to just take that big uncertainty out of the system."

His view goes contrary to the majority of opinions, though.

After the September jobs report, traders have been pricing in just a 30 percent possibility that the Fed increases rates by its December meeting, based on the assumption that the effective fed funds rate will average 0.375 percent after the hike. 

The chances climb to 39 percent by January and 51 percent by March, when several leading economists including Michael Gapen at Barlcays and Deutsche Bank's Joseph Lavorgna see a rate hike (finally) coming.

A number of Fed officials have voiced support for a rate rise before the end of the year.

On Monday morning, Atlanta Fed president Dennis Lockhart signaled that the FOMC will have more economic data at its disposal in December to vote on policy normalization, as opposed to its meeting later this month. Last week, Lockhart said he will closely monitor the U.S. consumer spending data as he weighs his decision.

Separately, Chicago Fed president Charles Evans said on Monday that he would prefer to wait until 2016 to raise rates, referring to soft inflation data.

On Monday after the close of trading, Fed governor Lael Brainard will discuss U.S. economic outlook at the National Association for Business Economics Annual Meetings in Washington.

St. Louis Fed president James Bullard will also discuss the economy and monetary policy at the NABE conference on Tuesday morning.