The employment picture is in the rear-view mirror, and the Fed will now focus on inflation, BlackRock's chief investment strategist for fixed income said Wednesday.
The central bank's Federal Open Market Committee statement due out at 2 p.m. EDT will shift the market's attention to price stability, Jeffrey Rosenberg said on CNBC's "Squawk Box." Some expect the FOMC to change the language it uses to signal when it will raise interest rates from near zero, using the phrase, "reasonably confident" rather than "patient."
"If we remove 'patience' it's going to be replaced with 'reasonably confident.' In what? In the outlook on inflation and the oil price story," he said. "The labor market picture has clearly turned to where you no longer need zero interest rates. How quickly you normalize is really going to be about that outlook for inflation."
While wages have remained a weak spot in the employment data, Rosenberg expects wage inflation will begin in six to nine months. He noted that monetary policy operates on a two-year lag, so the Fed must act now to get ahead of it.
Rates can rise without undermining the real economy, but the implications for financial markets are much more uncertain.
"There's complacency around the idea that we're going to have zero interest rates fueling financial market gains, fueling reaching for yield behavior, and no belief that the Fed can actually normalize and bring back some degree of interest rates in the financial markets."
Rosenberg sees a disconnect in the market's belief that the Fed will hold rates lower for longer and what the central bank is actually indicating.
"That is going to have to come together, and when it does that will be a better situation, but getting through that may be a bit difficult."
Markets will be able to cope with the removal of the word "patient" if the Fed indicates it is taking into consideration the strength of the dollar in its rate increase path, Krishna Guha, vice chairman at ISI Group, told "Squawk Box" on Wednesday.
The U.S. dollar has strengthened as the European Central Bank embarks on its own monetary stimulus program, threatening recently to reach parity with the euro. A stronger dollar makes U.S. goods more expensive abroad and dilutes the value of overseas earnings when American companies bring profits back home.
"There isn't anything that we've seen so far that suggests you can't raise rates. You're just going to have to do it a little more slowly than in a world where you had a more synchronized global expansion and monetary policy was going the same way in other countries," he said.
The Fed should move "carefully and empirically" to raise rates, slowing down or speeding up the pace as necessary, Guha said. He does not believe the Fed should raise rates in June, but said the conditions should be in place for a hike in September. A schedule that see rates rise every other FOMC meeting would be ideal, he added.
More than half of respondents to an survey by the American Association of Individual Investors said they expected a rate hike to yield no impact on financial markets or a slight decline with a rebound, AAII vice president Charles Rotblut told "Squawk Box."
Rotblut said he believes the chance of a rate hike is priced into the market, but continued to say, "Mr. Market does have the personality of a 2-year-old, and it's possible he'll start crying as if someone took his favorite toy away."
Eventually markets will go back to focusing on corporate earnings and the strength of the economy, he said.