Why the Fed will raise rates Thursday: Jim Grant

The Federal Reserve will raise interest rates Thursday at the conclusion of its two-day meeting for one very specific reason, closely followed market watcher Jim Grant said Wednesday.

"I think they do it for the very human reason that Janet Yellen wants to change the subject as much as we want to have it changed. Just do it," the editor of Grant's Interest Rate Observer said in an interview with CNBC's "Closing Bell."

He believes the increase will be 25 basis points.

Wall Street experts seem to agree a rate hike will come Thursday. According to the latest CNBC Fed Survey, 49 percent of respondents see the central bank raising this month. Of those surveyed, 43 percent said the first increase will come later. That is down 4 points from the August survey.

Read More Wall St now sees a Sept Fed rate hike: CNBC survey

The uncertainty surrounding a possible rate hike has been blamed, in part, for the volatile swings in the stock market recently.

Grant has long been critical of the Fed's monetary policy, noting Wednesday that everyone is talking about the central bank and wondering why the increase is so important. He believes that points to the overdependence of all finance on the Fed's policy, which has directly managed interest rates and to a degree, asset prices.

He said the legacy of the Fed's zero-percent interest rates have "distorted the structure of production and of the valuation of assets."

"As time progresses, we'll find just what the degree of distortion is."

Read MoreHere's why the Fed knows better than to hike now

Grant said the biggest distortions can be seen in the credit market, which he called "comprehensively, almost universally, mispriced."

He also pointed to the "tiny little interest rates" of U.S. Treasurys and sovereign obligations of European countries, and noted that junk bonds are still not priced for risks that are inherent in that class of security.

Torsten Slok, chief international economist at Deutsche Bank, also thinks the Fed should hike rates Thursday, but doesn't think it will. Instead, he believes the central bank will hold off, but send hawkish signals.

It all comes down to how the Fed communicates, he told "Closing Bell."

"How they lay out their case and what [Yellen] says at the press conference becomes quite important," he said.

"Sending a signal that we do believe this recovery is strong is the best thing that they should do tomorrow."

—CNBC's Steve Liesman and Linda Sittenfeld contributed to this report.