Record high stock prices and historically low bond yields are the product of strong economic growth — strong enough for the Federal Reserve to begin raising interest rates, says David Malpass, president of Encima Global research firm and former adviser to Ronald Reagan.

However, most economists don't expect the Fed to lift rates until at least mid-2015.

"The big question is how Federal Reserve policy reacts to the surge in asset prices," Malpass, who worked in the Reagan and George H.W. Bush administrations, writes in The Wall Street Journal.

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"I believe that they reflect faster, more sustainable growth, pointing to the need for interest rate hikes soon," wrote Malpass, deputy assistant Treasury secretary in the Reagan administration and deputy assistant secretary of state in the George H.W. Bush administration.

Bank loans and private-sector credit grew "very slowly" until January, he explains. "Since then the Fed's weekly data show that bank loans to private businesses have accelerated sharply and are on track to grow by $700 billion in 2014 after only growing $140 billion in 2013."

Credit for small businesses climbed 3.8 percent in the year through March 31, exceeding the nominal GDP growth rate (3.4 percent) for the first time in the Great Recession ended in June 2009, Malpass notes.

"It is vital that the Fed take this opportunity to move interest rates above zero," he argues.

"The taper [of the Fed's stimulus program] went through a two-step reaction in 2013-14 — howls from Wall Street and then acceptance. The same is likely for interest-rate hikes — howls and then a recognition that the sooner the Fed gets on with it, the better for growth and market integrity."

Meanwhile, James Grant, editor of Grant's Interest Rate Observer, believes the Fed has gone way too far in its massive stimulus program.

"First and foremost the patient is overmedicated — that is, the economic patient," he says in an interview with Forbes Media Chairman Steve Forbes.

"[With] stimulus by the bottleful, by the prescription-fill, gradually (and I guess not so gradually), the Federal Reserve has moved to substitute price administration for price discovery," Grant notes.

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