Federal Reserve

McCulley to Fed: No more excuses, declare victory

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The Federal Reserve needs to stop looking for reasons to avoid increasing interest rates for the first time in nine years—not because of any economic urgency, but to declare mission accomplished, Paul McCulley, former Pimco chief economist, said Wednesday.

"I don't think in the terms of the Fed hiking off zero [percent] to be a sign that we got an inflation problem [or] the economy is too hot," he told CNBC's "Squawk Box" in an interview. "It's simply like the graduation speech of the No. 1 person in the class when you were in high school. It's a valedictory. We did it."

In response to the financial crisis and the economic damage that followed, monetary policymakers have held the fed funds overnight lending rate at near zero percent since December 2008.

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Whether at its September or December meeting or beyond, the Fed won't hike rates aggressively, creating at shallow path higher, McCulley predicted.

"The fundamental problem is the [economic] pie ain't growing big enough, and everybody wants a bigger piece," he said—adding that in the absence of fiscal policy to promote growth, central banks are the "only game in town."

That leaves the "markets everyday slavish to every little tidbit of this, that, or the other, whether it's an action in the United States [or] a word from an FOMC official," he said.

Meanwhile, the stronger dollar has also been seen as a reason not to increase rates, because moves higher by the greenback can act as an effective rate rise.

"I think that's a consideration and that's why the Fed hasn't done it so far. They may or may not do it in September," McCulley said.

"[But] If you're looking for an excuse not to get off of zero, you will find an excuse not to get off zero for the rest of your adult lifetime," he said.