Federal Reserve

Senator to Yellen: Forget stock drop, normalize

Time for Fed to 'return to normal': Sen. Toomey
Time for Fed to 'return to normal': Sen. Toomey

Sen. Pat Toomey said Thursday the Federal Reserve should continue moving monetary policy back to normal, despite the swings in the financial markets.

"I'm going to try to be a voice for encouraging a normalization," Toomey told CNBC's "Squawk Box." The Pennsylvania Republican is member of Senate Banking Committee, where Fed Chair Janet Yellen appears Thursday morning in the second part of her semiannual testimony on the economy.

In testimony Wednesday before the House Committee on Financial Services, Yellen kept her options open to further hike interest rates while acknowledging the financial market turmoil and concerns about China.

Read More Fed's Janet Yellen: Not sure we can do negative rates

Early Thursday, stocks, oil, and the dollar versus the yen were under severe pressure. The 10-year Treasury yield broke through a three-year low, while safe-haven gold climbed to its highest level in almost nine months.

"We shouldn't be shocked that some asset prices have a little bit of a rough ride along the way," Toomey said.

"We've got a Fed that's just been winging it by the seat of their pants … in one direction right, this unbelievable accommodative policy, this unprecedented policy, which I think is very dangerous," Toomey said. He contended that the Fed's stated goal was to boost asset prices with easy money, so it stands to reason that tighter policy could reverse things a bit.

Read More'I hate to say' selling going to continue: Gartman

Toomey said the Fed needs to more clear about how it sets policy. "Have a rule. You can pick it. But follow a pattern. It can be driven by the data, but it should be well defined," he said. He added he would be OK if conditions periodically warranted a departure from the model.

He also said he wanted to ask Yellen at the hearing about the potential ramifications of negative interest rates. On Wednesday, Yellen said the central bank has not completely researched whether negative rates, deployed in the euro zone and Japan, would be legal in the United States.

Read MoreWhy the sell-off could end soon: Strategist

Asked whether she foresees the Fed cutting rates after just hiking them from near zero percent in December for the first time in more than nine years, Yellen said she did not expect that to happen anytime soon.

The Fed, in December, had projected four more rate increases for 2016. But with all the new year turbulence, expectations in the market don't see any more hikes anytime soon.

Read MoreInterest rate futures not seeing rate hike until 2018