The boss of a 'Black Swan' fund warns the Fed's rate hikes could cripple markets and the economy - and cause a bigger problem than inflation

Mark Spitznagel warned that the Fed's efforts to crush inflation risk would cause asset prices to collapse and plunge the US economy into a severe recession.

"If the Fed's going to try to bring inflation down, they're going to bring inflation down very quickly, but it's also going to cause destruction," he said.

Universa Investments is a fund that hedges portfolios against extreme and unpredictable events.

He accused the Fed of inflating asset prices for 25 years with low interest rates and a loose money supply and argued that a return to its historical policies is now impossible.

He doesn't believe that the Fed can ever raise rates again.

The author of "Safe Haven: Investing for Financial Storms" pointed out the peculiarity of the Fed scaring investors and cooling the economy when it's trying to shore up asset prices. The central bank might lose control of the situation.

He said that a controlled burn can turn into a cascade of fires. "That is the real risk here, and that is what investors need to think about, not the type of losses that occurred this year, but the type of losses that this can turn into, where the Fed actually can't do anything to stop it."

The Fed has to make a decision between two bad options, elevated inflation or a recession. He predicted that they would choose to protect financial markets at the cost of allowing inflation to stay above their 2% target.

The investor raised the possibility that the Fed would tighten its monetary policy too much.

He said that we should be more concerned about deflation. People aren't thinking about that risk. We will be in a deflationary spiral if the Fed bubbles.

Nassim Nicholas Taleb, the author of "The Black Swan: The Impact of the Highly Improbable" and a Universa adviser, echoed the thoughts of Spitznagel on Thursday.

He said that 15 years of Disneyland has destroyed the economic structure. He said that cheap money has inflated asset bubbles.

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