Why the Fed may be forced to raise rates

US economy 'basking in mediocrity': Peter Boockvar

Despite the contraction in first-quarter GDP, the Federal Reserve may be forced to raise its benchmark interest rates because of higher core inflation and a low unemployment rate, analyst Peter Boockvar said Monday.

"The problem now with the Fed is that, with this 2 percent [annual] growth rate, we may have a 4-handle on the unemployment rate in the second half of the year. Their long-term forecast ... is 5 percent, [and] we have core inflation ticking up. So, the Fed's going to be put into a situation in which, with 2 percent growth, they're going to have to start raising rates," the Lindsey Group's chief market analyst said on CNBC's "Squawk Box."

The U.S. government said Friday the economy contracted by a 0.7 percent annualized rate. A larger trade deficit and a smaller accumulation of inventories by businesses than previously thought accounted for much of the downward revision. There was also a modest downward revision to consumer spending.

With growth estimates for the second quarter around 2 percent, the economy appears poised for its worst first-half performance since 2011.

Read More Rate hike needed to pop bubbles: Robert Shiller

Last month, the Labor Department said the economy generated 223,000 jobs in April and the unemployment rate fell to 5.4 percent, a seven-year low.

Royal Bank of Scotland chief economist Michelle Girard agreed that the low unemployment rate is making the Fed "uncomfortable" with leaving interest rates at zero. "They may disagree on whether interest rates should be 1 or 2 [percent], but more and more [members] on the committee feel that sitting at zero ... is probably not right," she said on "Squawk Box."

Still, Girard added she does not believe the economy will be too different if, or when, the central bank decides to raise rates. "I just don't think the economy is that fragile or that sensitive to a modest interest rate increase."

Another expert, Evercore Partners chairman Roger Altman, agreed that the U.S. economy is in good shape amid a steadily growing labor market, rising wages and an improving housing market.

"I don't think the economy is as poor as some people may think," he said on "Squawk Box." "Yes, the first quarter was pretty bad … but this quarter should be 2.5 percent plus, and the rest of the year should be in that same zone."

Market correction overdue?

Overdue for 'traditional' correction: Roger Altman

Altman added that investors should watch out for a market correction since "we're overdue" for one.

"There are some anomalies, [and] my favorite one is that private market valuations are occurring at higher levels than public market valuations. It doesn't happen very often. And then, of course, merger volume is also a sign of toppiness," he said.

Merger deals this year total more than $740 billion, with some of the largest ones being the Charter Communications-Time Warner Cable deal, which was announced on May 26 and is estimated at about $56 billion.

—Reuters contributed to this report.