Federal Reserve won't hike rates 'for all the right reasons,' says former Fed Governor Larry Lindsey

• "The Fed should not raise rates because GDP is growing too fast or because too many people are working," says  former Bush economic advisor Larry Lindsey.
• What they need to look at is inflation, which is declining, he says.
• If the Fed hikes on Wednesday, it will be saying, 'We're ignoring the data,' says Lindsey.

The Federal Reserve won't raise rates on Wednesday "for all the right reasons," former Fed Governor Larry Lindsey told CNBC on Tuesday.

The central bank is expected to announce whether or not it will hike rates by a quarter point on Wednesday and market consensus is that it will do so.

"The Fed should not raise rates because GDP is growing too fast or because too many people are working. What they need to do is look at inflation," the CEO of economic consultancy firm The Lindsey Group said on "Power Lunch."

"We are getting more verification of declining inflation," added Lindsey, who served as Fed governor from 1991 to 1997 and as director of the National Economic Council under President George W. Bush.

The central bank is holding is final monetary policy meeting of the year on Tuesday and Wednesday. A quarter-point rate hike, which the market is expecting, would be the fourth in 2018.

President Donald Trump has been repeatedly calling on the Fed to not increase rates. On Tuesday, he made a last-ditch pitch on Twitter, saying, "Feel the market, don't just go by meaningless numbers."

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Lindsey said that while a quarter point hike isn't that important overall, what matters is the Fed's credibility.

"If they raise tomorrow, they will be saying, 'We're ignoring the data.' They'll be saying, 'Our mission is to carry through what we said three months ago rather than look at the facts on the ground.'"

The Federal Reserve declined to comment on Lindsey's remarks.