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Why we're still stuck in the 'new normal': Pimco

The financial markets have shifted their obsession from Fed tapering to fixating on when, and by how much, short-term interest rates will increase, Pimco strategist and portfolio manager Tony Crescenzi told CNBC on Thursday.

"Tapering is so 2013. The focus of markets now is going to be on the policy rate and how high it ultimately goes," Crescenzi said in a "Squawk Box" interview. The Fed funds rate that banks charge each other for loans will ultimately settle below 4 percent, he predicted. The central bank is expected to begin the tightening process next year.

At the end of its two-day meeting Wednesday, the Fed reduced its bond and mortgage-backed securities purchases by another $10 billion to a pace of $45 billion a month. The current quantitative easing program is expected to be completely wound down by year's end.

While the Fed tapered again, the markets took solace Wednesday in the central bank's more upbeat view on the economy in its policy statement, despite recent data to the contrary. The Dow Jones Industrial Average closed in record territory, and the S&P 500 just shy of a new high.

Read MoreUS economy crawls in first quarter

Pimco, the bond dealing giant, sees "stronger growth this year" of about 2.5 percent to 3 percent, Crescenzi said. "The short-term story looks good." But over the long-term, the economy looks to be stalled and maybe it just can't grow as fast, he added. "I try to think about it in the way I think about my Prius," he said. "The Fed's put a lot of gas in the tank, but the engine is just so slow."

Earlier this week, former Pimco CEO Mohamed El-Erian told "Squawk Box" that the "new normal" is still in effect.

El-Erian and Pimco coined the term in 2009, when they predicted the economy would grow slowly over three to five years against the backdrop of high unemployment and government debt problems.

Read MoreStocks may get rude awakening: Mohamed El-Erian

"Mohamed's view is excellent," Crescenzi said. "And we still have that same view collectively that over the long term, it's difficult to grow fast" in part because of the reluctance of banks to start lending money again in earnest.

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In the minutes of the last Fed meeting, policymakers cited "precautionary savings" as a headwind for the economy in the long term, Crescenzi pointed out.

"We're not as ostentatious as we used to be be. Are we trying to 'Keep up with the Joneses' like we used to by borrowing off our house and our credit cards?" he asked. "Probably not. And banks won't allow it."

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—By CNBC's Matthew J. Belvedere

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