‘Read Econmic News Together’ Series

Goldman’s Hatzius: The market is probably underpricing a Fed rate hike

The Federal Reserve may raise rates sometime this year,possibly catching the market off guard, Goldman Sachs' chief economist, JanHatzius, said Friday.

"We think they probably are underpricing [thechances of a rate hike]" Hatzius told CNBC's "Squawk on theStreet."

"We have a 25 percent probability for a hike at theSeptember meeting. So, we don't think it's going to happen but it's possible.Then, we've got 40 percent for the December meeting," he said.

According to the CME Group's FedWatch tool, marketexpectations for a rate increase in September held at 6 percent, and are just22 percent for December.

Hatzius made his remarks after the Bureau of LaborStatistics reported U.S. payrolls grew by 287,000 in June, well above Reuters'consensus estimate of 175,000. That said, the already-weak May number wasrevised down to a gain of 11,000 from 38,000.

However, Art Cashin, UBS director of floor operations atthe NYSE, said Friday that investors need to look at more data before assessingthe strength of the U.S. labor market.

"Two months in a row look like a random numbergenerator," Cashin said in another "Squawk on the Street"interview. "I think you're going to have to wait for other economic datato see if it begins to corroborate what's going on."

U.S. stocks surged on the heels of the jobs report. TheDow Jones industrial average rose more than 200 points, while the S&P 500and the Nasdaq composite both gained more than 1 percent.