US Economy

Fed is exactly where it should be right now: Pimco's McCulley

Paul McCulley: Fed exactly where they should be

Inflation is under control and the Federal Reserve is exactly where it should be right now, Pimco chief economist Paul McCulley told CNBC Thursday.

"The Fed wants to be very, very patient with this economy," he said in an interview with "Closing Bell."

The central bank has held interest rates at effectively zero for over five years and has had "robust forward guidance" that it will continue to keep rates near zero. Additionally, the Fed is phasing out its quantitative easing basically on "autopilot."

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"They've also very explicitly told us there will be a considerable period between the end of QE 3 and when they actually think in terms of 'liftoff,' as it's called these days, from zero."

Paul McCulley, chief economist of Pimco, is shown at the firm's headquarters in Newport Beach, Calif.
Patrick T. Fallon | Bloomberg | Getty Images

While officials talk of that so-called liftoff coming during the middle half of next year, McCulley said that is not a commitment to hike rates.

McCulley also said he doesn't see the 10-year Treasury yields falling back below 2 percent unless "something pretty nasty" happens.

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"To go below 2 percent, we'd have to have expectations, I think, shift downward on the economy and also have a negative surprise on inflation side of things—negative being too low," he said. "I don't envision going below 2 percent in this cycle again."

As for growth prospects for the second half of 2014, McCulley thinks it's reasonable to expect something in the range of 3 percent.

Read MoreThe job market really may be healing

"It's not a gangbusters economy but clearly we've got underlying momentum in the economy now versus a couple years ago," he said. "The most important thing is we're creating jobs and jobs are unambiguously the straw that stirs the drink in an economic recovery."

—By CNBC's Michelle Fox