Market being too pessimistic in pricing US hiking cycle?

The market is pricing in very benign US hiking cycle, which looks to be too pessimistic.The market is now effectively pricing in the first hike to be around June 2016, with the fed funds rate rising only to 0.6% by YE 16 and 1% by YE 17. 

These levels are too low even making very conservative estimates about progress towards the dual mandates. Essentially, the market is pricing in a turn in the business cycle, which is likely premature, given the underlying strength of US consumption.

"Activity data still point to about 2% growth in 2015, which, while below consensus, is roughly in line with Fed's latest forecasts. Further, a steady decline in broad measures of slack (U6) suggests the economy is still growing above trend. At the current pace, U6 is likely to reach even conservative estimates of natural rates before the end of 2016", states Barclays. 

Finally, while y/y core PCE inflation at 1.3% is well below the Fed's target, it has remained stable and 1y ahead it is likely to be higher than current levels.. In a recent speech, Fed Chair Yellen argued that a significant portion of the shortfall vs. the target can be attributed to the recent fall in energy prices/strengthening of the dollar. 

"While they may still be keeping inflation below the Fed's target one year from now, the market is being too pessimistic in expecting inflation to remain below spot core levels even over the medium term", added Barclays.