Greenspan, 92, suggested the nearly 50-year low unemployment rate coupled with American corporations clamoring for workers will force up wages and inflation. "Ultimately prices take hold," he said.
"This is the tightest market, labor market, I've ever seen, he said in an interview with "Squawk Box." "But concurrently, we have a very slow productivity increase."
Greenspan — who served as chairman of the Fed from 1987 to 2006, spanning four presidents — said that's having a significant impact on GDP growth.
"And, therefore, it's ultimately the source of populism, which has infected the United States," he added.
President Donald Trump has repeatedly slammed Fed Chairman Jerome Powell in recent weeks, saying the Fed is increasing rates too quickly and that stronger economic growth won't lead to problematic inflation.
In the CNBC interview, Greenspan gave Powell a vote of confidence, saying he's not worried about where the Powell-led Fed is headed with monetary policy. Greenspan added the best way for central bankers to deal with presidential jawboning, which happens during all administrations, is to put on "earmuffs."
According to minutes released of the Fed's most recent policy meeting, central bank officials remain convinced that continuing to gradually increase interest rates is the best formula to preserve a steady economy.
Greenspan's new book, "Capitalism In America: A History," which he co-authored with Economist political editor Adrian Wooldridge, was released this week.
— CNBC's Jeff Cox contributed to this report.