While some commentators have fretted that the Federal Reserve's massive easing program will spark higher inflation, Pimco Chief Economist Paul McCulley says the Fed has slain the inflation dragon.

"For the last 15 years inflation has been incredibly absent," he tells CNBC. "We've had our cyclical ups and downs. But when you look at it on a chart, I think we've achieved the promised land of price stability over many cycles."

Consumer prices rose 2 percent in the year through April.

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Thanks to its successful effort against inflation, any Fed tightening will merely represent fine-tuning of the economy, McCulley notes.

"I think the Fed will tighten next year, but it's not trying to pre-empt an increase in inflation. In fact, the Fed's told you it won't hike [interest rates] until after inflation has moved up closer to target. That is a profound paradigm change," McCulley adds.

He believes the normalized federal funds rate will shift down to 2 percent from 4 percent in the past. The Fed's fed funds rate target now stands at a record low of zero to 0.25 percent.

"The new reality, having won the war against inflation, escaping the liquidity trap, is no pre-emption on tightening, and a stopping point in the neighborhood of 2 percent nominal."

As for financial markets, stocks and bonds are fairly valued. While bonds don't have much upside potential, stocks can rise on strong economic growth and earnings, he argues.

"If I still believed in a 4 percent neutral Fed funds rate then sell everything you can get your hands on, but if you believe in 2 [percent], the markets are in a fair zone of valuation," McCulley explains.

Steve Forbes, chairman of Forbes Media, doesn't share McCulley's view on inflation. It's higher than the consumer price index (CPI) would indicate, because the government keeps changing the CPI, Forbes tells Newsmax TV.

"That's why you see more expensive food in the supermarket, more expensive gasoline, but it doesn't seem to show up in the CPI," he says.

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