'Very tough' for Fed to normalize: Taleb

Black swan, bear markets
Black swan, bear markets

The Federal Reserve faces a "very tough" task in normalizing monetary policy, as it has limited tools at its disposal after years of near-zero interest rates, academic and writer Nassim Taleb said Friday.

"The Fed is like a huge army with very sophisticated equipment and no ammunition," he said in a CNBC "Power Lunch" interview.

"They inherited that big machine without weapons. They realize that interest rates at zero is not something normal. And there's no evidence that zero interest rates is better than 3 percent. But how to get to that normal level is going to be a very, very tough task for them," the author of "The Black Swan" said.

Nassim Taleb, author of The Black Swan.
Adam Jeffery | CNBC

Earlier this summer, expectations had increased that the Fed could raise interest rates in September, as its policy committee said it saw an improving U.S. economy and tightening labor market. But one of the most erratic stock market stretches in recent memory seemed to put a damper on the central bank's plans.

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Concerns about China's slowing economic growth have partially driven the rocky equity trading, which sent major U.S. averages down more than 5 percent earlier this week before a swift reversal. Taleb noted that he has "never seen so much excitement over nothing."

"China would not affect us directly economically. China would be maybe a diversion," he contended, adding that slumping Chinese consumer demand would not disrupt most American companies.

Still, a hedge fund affiliated with Taleb posted a strong week amid the mayhem, according to a Wall Street Journal report. Universa Investments—which attempts to profit from extreme events—gained about 20 percent on Monday, sources told the newspaper. The Dow suffered a record intraday decline of nearly 1,100 points that day.

The fund has accumulated more than $1 billion in profits, both realized and on paper, in the last week, the Journal wrote. Taleb declined to discuss the report in detail, but he noted that he is a scientific advisor to the fund.

On Wednesday, New York Federal Reserve President William Dudley said a September liftoff for interest rates "seems less compelling to me than it was a few weeks ago." In response to those remarks, Fed Vice Chairman Stanley Fischer told CNBC on Friday that "it's early to tell" if a hike next month would be appropriate.

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While it could affect the Fed's thinking, China's slumping economy has not changed the fundamental story in the U.S., Taleb added.

— CNBC's Kerima Greene contributed to this report.