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Boockvar: The Fed should raise rates and cause a recession

What will pop the global central banks bubble?

While the leadership of the Federal Reserve stresses that its decisions depend on economic data, some central bank watchers think policymakers would be better off closing their eyes and raising rates.

"There is no smooth way out of this monetary cycle," Peter Boockvar of the Lindsey Group wrote to CNBC on Tuesday. "We either get the rate adjustment out of the way now or stay on the path that is Japan. I'm for the former even though the odds of both a recession and a bear market are the likely outcomes in the short term."

One of the biggest questions for markets is whether the Federal Reserve will rates this summer, a move it could choose to make next week or in July. Market-implied odds of that event rose substantially after the minutes of the Fed's April meeting were released, but slipped again on Friday after a surprisingly poor jobs report.

It may seem odd that for Boockvar, as for many Fed critics, skepticism about the underlying strength of the economy is paired with the belief that rates have been too low for too long. After all, subpar economic growth would seem to call out for lower rates, all things being equal. However, any disagreements about optimal Fed policy between the Peter Boockvars of the world and those who hew closer to the mainstream view are more philosophical than anything else.

In fact, Boockvar's belief about the Fed's rate policy is that there should not be one. "I think the Fed should be removed from price fixing the cost of short term money," he said. "The market every day should set it instead."

That is to say, Boockvar's Platonic conception of the Fed has the central bank acting as neither spur nor anchor. If Boockvar's Fed was a third-base coach, it would ever be signaling to the runner rounding second: "Make your own decision."

More specifically, Boockvar believes the federal funds rates "should never be below the level of core inflation," meaning it should now be at nearly 2 percent. On Monday, the effective rate was at 0.37 percent according to the New York Fed, which shows how high the rate needs to climb in Boockvar's estimation. Hence the lack of hypocrisy of Boockvar simultaneously saying the economy stinks and the Fed needs to raise rates.

Boockvar is aware that if the Fed actually substantially raises rates in the midst of an economic drought, the economy and stocks will suffer. But he says that right now, the central bank is "really stuck," given that a series of weak data points (more notably that jobs report) is getting between the Fed and its stated plan to raise rates if the data cooperate.

Even compared to a recession and a bear market, "staying trapped by waiting is dangerous from a longer-term perspective," he wrote to CNBC.