US Economy

US economy will improve and Fed could find itself in tough spot, Deutsche's LaVorgna says

Is the economy gaining strength?

The U.S. economy is going to pick up steam next year and that means the Federal Reserve could find itself behind the curve, Deutsche Bank chief economist Joe LaVorgna told CNBC on Thursday.

LaVorgna, who's been negative on the economy for a while, said he changed his mind with the election of Donald Trump. He believes the president-elect is going to give the economy a lot of fiscal stimulus.

"If we're running a 3 to 4 percent GDP, which I believe possible, the Fed's going to be in a really, really tough spot," the CNBC contributor said in an interview with "Power Lunch."

Critics have been warning that if the central bank doesn't move soon on raising rates, it could find itself trying to catch up with rising inflation.

Federal Reserve Board Chair Janet Yellen testifies before the Joint Economic Committee on Capitol Hill, Nov. 17, 2016, in Washington, D.C.
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On Thursday, Fed Chair Janet Yellen told Congress a hike could be "appropriate relatively soon." She also cited the dangers of waiting too long, which could result in the Fed having to move too quickly in the future.

Yellen has been criticized by Trump, who suggested during the campaign that he would replace her at some point. Despite chatter that political pressure may cause her to step aside, the chair told Congress on Thursday she isn't stepping down until her term is up at the end of January 2018.

While it is unusual for the Fed to be dragged into presidential politics, LaVorgna believes the central bank brought it on itself with its quantitative easing, zero interest rates and forward guidance.

"The Fed went in places it shouldn't have gone," he said, noting that the problem is bigger than Yellen and really started with former Fed Chair Ben Bernanke.

"They've lost credibility among many investors," he said.

— CNBC's Jeff Cox contributed to this report.