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Fed should hike rates to 3% all at once: Hedgie

Morgan Creek Capital Management CEO Mark Yusko said Wednesday the Federal Reserve should raise interest rates to 3 percent in one fell swoop.

"Get back to normal," Yusko told CNBC's "Squawk Box."

"Just reload the gun, 300 basis points."

Acknowledging a move like that would shock the markets, he argued, "it would send a message of confidence and saying the economy is strong [and] it can handle normal interest rates."

The Fed's two-day September meeting begins Wednesday, with a decision on whether to raise rates for the first time in more than nine years Thursday afternoon, followed by a news conference by central bank chief Janet Yellen.

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"If you think about ... 100-plus years of history, the short-term rate has been equal to the nominal GDP growth rate. Nominal GDP is around 4 percent. So 3 [percent] would even be below that," said Yusko whose Morgan Creek Capital, currently with $4.5 billion in assets under management, is primarily a hedge fund allocator, which means it invests in other funds on behalf of clients. The firm also makes its own bets on certain stocks.

"This artificial period of rates has been harmful," he said. "It's like water behind pipe. If you hold it back, hold it back, hold it back. When it finally releases, it's going to be much worse."

Morgan Creek was founded in July 2004 by Yusko, a former chief investment officer of The University of North Carolina at Chapel Hill Endowment. He has close ties with investment legend Julian Robertson, who provided seed funding.

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—CNBC's Maneet Ahuja contributed to this report.