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Fear Fed hasn't learned its lesson: Roach

The Federal Reserve should be more aggressive about raising interest rates, Stephen Roach, a senior fellow at Yale University, told CNBC Thursday. If not, he fears it could end very badly for the economy.

When the central bank was incremental in normalizing rates 10 years ago during a time of enormous froth in the housing, equity and credit markets, it led to huge distortions in the real economy, he said in an interview with "Closing Bell."

"Finally, when the bubbles popped the whole house of cards came down."

The Fed still hasn't learned its lesson, he added.

"[It] doesn't appreciate the precedent of what put world through a decade ago and I fear they're doing it again."

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While Roach thinks the Fed needs to move faster in raising rates, many investors are quietly hoping it won't happen.

On Thursday, Charles Evans, president of the Chicago Federal Reserve Bank, said he didn't think the central bank should be in a hurry to raise rates. He noted that inflation has been running below the Fed's target for the last six years and is unlikely to reach that target for another three to four years.

Read MoreFed should not be in a hurry to raise rates: Evans

However, Roach, former chairman of Morgan Stanley Asia, believes the Fed is too concerned with the stock market and should do its job.

"The Fed needs to be more disciplined [and] remember what a central bank is supposed to do," he said.

"The Fed is being dragged around the by the markets and is fearful of disturbing market sentiment rather than doing its job. It's a steward of the real economy."

—Reuters contributed to this report.