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Schiff: Yellen is 'half right' about the market

Fed chair Janet Yellen spooked investors Wednesday when she warned against sky-high equity values. And in a strange turn of events, she's finding an unlikely ally in her assessment in the form of her biggest critic, Peter Schiff.

On CNBC's "Futures Now," the outspoken Schiff said that the stock market is "more than just a little overvalued, it's extremely overvalued." But rather than defending Yellen's call, Schiff instead blamed the Fed's policies for the frothy valuations that Yellen was warning about.

According to Schiff's logic, the sky-high valuations for equities are a direct result of the Fed's easy money policies over the past couple years. Schiff said that "artificially low rates" have forced investors to buy stocks and in the process have made them more expensive.

"Janet Yellen was half right when she said the stock market was overvalued," Schiff, Euro Pacific Capital CEO on said on Thursday.

Read MoreYellen was right, markets are overpriced: Shiller

According to Schiff, the Fed is now trapped and unable to raise rates, as he believes doing so would prick the very bubble in stocks that it created.

"If the Fed was really going to raise interest rates [the market] would be a lot lower," he said.

As a result, Schiff is convinced that the Federal Reserve will not only not raise rates anytime soon, but will likely enact another round of quantitative easing. By his logic, the Fed will do "anything" to keep stocks high.

"That's also why I don't think the Fed is going to raise interest rates, because I don't think Janet Yellen wants the stock market to go down. This whole phony recovery is based on asset bubbles and the Fed is not going to intentionally prick those bubbles."

So, how overvalued does Schiff think the stock market is? "It's difficult to say," he said. "I don't know how far the market will drop because I don't think the Fed will allow it to."

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