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Not much is going to stop Fed from normalizing, says analyst Peter Boockvar

  • Even if there is a modest pullback in stocks when the Federal Reserve starts to unwind its balance sheet, the central bank will still raise interest rates in December, Peter Boockvar said.
  • The Fed announced Wednesday it would begin to roll off its $4.5 trillion balance sheet in October and indicated one more rate hike is likely this year.
  • "They want to continue to normalize this interest-rate environment that they put us in and I don't think much is going to stop them," Boockvar said.

Even if there is a modest pullback in stocks when the Federal Reserve starts to unwind its balance sheet, the central bank will still raise interest rates in December, closely followed analyst Peter Boockvar told CNBC on Wednesday.

The Fed announced Wednesday it would begin to roll off its $4.5 trillion balance sheet in October and indicated one more rate hike is likely this year.

"They want to continue to normalize this interest-rate environment that they put us in and I don't think much is going to stop them," chief market analyst for The Lindsey Group said in an interview with "Closing Bell."

The Fed also forecast three rate increases in 2018 and two in 2019 and provided a timetable for how the balance-sheet reduction would occur.

Federal Reserve Chairman Janet Yellen speaks during a news conference after a two-day Federal Open Markets Committee (FOMC) policy meeting, in Washington, September 20, 2017.
Joshua Roberts | Reuters
Federal Reserve Chairman Janet Yellen speaks during a news conference after a two-day Federal Open Markets Committee (FOMC) policy meeting, in Washington, September 20, 2017.

Instead of reinvesting all the proceeds of its bond portfolio, the Fed will allow $10 billion to roll off at first, increasing quarterly in $10 billion increments until the total hits $50 billion starting in October 2018.

Boockvar pointed out that seven years ago, former Fed Chair Ben Bernanke said the central bank wasn't monetizing debt because its quantitative easing program was temporary.

"Here we are almost 10 years in to something called temporary, and that's one of the reasons why they're going to shrink their balance sheet, because monetization of the debt is the last place the Fed wants to be in," he said.

The Fed also reduced its outlook for inflation on Wednesday, cutting its expectation from 1.7 percent this year to 1.5 percent, and from 2 percent to 1.9 percent in 2018. Its inflation target is 2 percent.

Susan Ochs, senior fellow at the New America Foundation, noted that Chair Janet Yellen said five times during her Wednesday news conference that she didn't really understand what was going on with inflation.

"To me, that is profound to hear from a Fed chair," she told "Closing Bell."

"This is like a meta-level of uncertainty in that the economy is not functioning the way that we expect it to. She talked about in the past we could attribute it to slack in the labor markets, to low energy prices, but now we don't really know," she added.

Moody's Analytics chief economist Mark Zandi said inflation expectations are critical.

"They don't want inflation expectations to fall below 2 percent or rise too far above 2 percent because then it becomes very difficult to manage," he said in an interview with "Closing Bell."

— CNBC's Jeff Cox contributed to this report.