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Will Fed Listen to Barron's and Hike Rates?

The Federal Reserve should raise interest rates now or the US economy will be faced with another bubble, Barron's warned in its cover story; but analysts told CNBC this will not happen.

"It's time to raise the rates, Ben," ran the headline on the front cover above a picture of Federal Reserve Chairman Ben Bernanke.

The magazine is not alone in promoting this idea.

"I think that the US central bank should begin raising rates in December, I believe that the economy is strong enough for that," Dariusz Kowalczyk, chief investment strategist at SJS Markets Limited told CNBC.

"At the same time I'm sure they will wait longer because they will want to err on the side of caution," Kowalczyk added in an interview for "Worldwide Exchange."

Caution is the word, but also the economic indicators are not there yet, Jim O'Neill, head of global economic research at Goldman Sachs, told CNBC.

Ben Bernanke
Ben Bernanke

"I think somewhere down the road that the gist of the pieces is somewhat right," O'Neill said, but "this is probably more of a philosophical sign of an editorial stance rather than an immediate concern."

"If we had 3 quarters of consecutive above trend growth, then you're talking," he added.

Look Out for Next Year

He reminded of Japan's "lost decade", saying part of it was caused by the fact the Bank of Japan raised rates too quickly in the mid-1990s, causing deflation.

"I think the name of the game to have kept us away from an even more severe recession than we have is to ease financial conditions," O'Neill said.

"They (the Fed) want financial conditions to be as easy as possible. I think the Fed will be pretty relaxed about it at the moment, as it should be," he added.

The Barron's article served one good purpose though, to remind market participants that central banks' decisions are not always easy to anticipate.

"It's a widespread view that the Fed won't be able to move rates until 2011. They miss the point," David Page, economist at Investec, told CNBC. "We do expect to see the Fed start its move around the middle of next year."

The Fed will likely raise rates to around 2 percent, but will probably have to remain around that level for a few years to avoid choking the recovery, he said.