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Kyle Bass: Falling oil to push back Fed rate hike

Hedge fund manager Kyle Bass told CNBC on Friday that falling oil prices are creating a "deflationary environment" that will force the Fed to delay its interest rate increases.

Like many market watchers, the founder of Dallas-based Hayman Capital Management said he had expected the first rate hike to be in June.

"Now maybe you won't. Maybe you'll see it in October or November," Bass said in a "Squawk Box" interview from the World Economic Forum in Davos, Switzerland. "The problem the Fed has now is you have a real kind of deflationary environment because of oil, even though you have close to full employment."

Bass predicted oil prices will be $60 to $70 a barrel in two years. "Right now we're in a pretty big supply glut," he said. "Could it trade at $35 today? It absolutely could. We have more than we know what to do with."

Oil was higher in early trading Friday—with U.S. crude prices around $47 a barrel—as news of the death of Saudi Arabia's King Abdullah fueled uncertainty. But experts see little chance of any change in the Saudi strategy to keep production high for now.

Bass also said he's not making any bets on Europe right now, nor did he make any moves ahead of the ECB's decision Thursday to embark on an open-ended $1.2 trillion bond purchase plan to stimulate the euro zone's flagging economy.

"The size of this program is going to be pretty impressive," Bass said. He said it looks like ECB President Mario Draghi wants to bring the euro to parity with the dollar. The euro early Friday was lower—trading under $1.12, the lowest levels in more than 11 years. "Typically when you're in a recession you have to be able to drop interest rates. ... You can't. This is the only arrow in the quiver."

He did say he's still bearish on Japan.

Bass made a name for himself in 2007 with a lucrative bet against the subprime mortgage market.

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