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How fast will the Fed hike rates? Heller weighs in

Former Federal Reserve governor Robert Heller says he "fervently hopes" the U.S. central bank will hit the "lift-off" button this week, outlining what he believes will be the trajectory for rate hikes in the world's largest economy.

"If everything stays benign as it is, we should be looking at increases at about every second meeting," Heller said on Wednesday. "So, 25 basis points four times a year," he said.

The comments follow remarks by former European Central Bank President Jean-Claude Trichet who told CNBC that the Fed should lift rates, in contrast to the advice given by the World Bank and the International Monetary Fund.

Heller, who served on the Board of Governors of the Federal Reserve System from 1986 to 1989, is confident the U.S. economy is well positioned to cope with a rise in interest rates from the current 0-0.25 percent.

"They (the Fed) are already lower than their unemployment target, they are very close to where they want to be on inflation, and overall we have price stability. That's what congress is asking them for. Why wait?

"Overall, around the world economy, if you forget about the refugee crisis, things are fairly calm. China is slowing down a little bit but there are no disasters in the world. Do it," he added.

Robert Heller
Robert Heller

The Federal Open Market Committee's (FOMC) upcoming policy decision on Thursday is arguably the most hotly anticipated market event of the year as a rate hike would be the central bank's first in nearly a decade.

Investors remain deeply divided over when the Fed will pull the trigger, according to the latest polls.

CNBC's online poll, which was launched on Monday, so far shows that 36 percent of the 25,000 plus respondents expect the Fed will hike rates in September, 10 percent in October, 19 percent in December and 36 percent in 2016.

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On Tuesday, former Dallas Fed President Richard Fisher told CNBC he believed the decision would be a very close call. "I think it's still a 50-50 decision. For the first time in long time, they'll decide at the table," he said.

While the Fed has remained mum on the timing of its monetary tightening, it has been that flagging interest rate increases would be slow and gradual.

Following its policy meeting in June, the Fed suggested that it might raise rates only once in 2015 by a quarter percentage point. By December 2017, it expects its benchmark short-term interest rate to remain below 3 percent.