The Federal Reserve's decision-making process over the last six or eight months has been "a bit puzzling," former Fed Gov. Kevin Warsh told CNBC on Thursday.
"It is not obvious what their strategy is. I know they say they're data dependent. I don't know exactly what that means," he told CNBC's " Squawk Box " in an interview. "They look to me asset price dependent, more than they look [economic] data dependent."
The Fed has been using turbulent financial market conditions as an excuse — before and after December's interest rate hike — not to make a move, giving the impression policymakers care more about not tanking asset prices than reacting to economic conditions, Warsh said.
But now U.S. central bankers have waited too long, he contended. "The Fed had a long window to tighten policy, to raise rates — 2013, 2014 and [most of] 2015 — and it strikes me they missed that wide-open window."
"The bad news is the real side of the economy in the U.S. deteriorated since September," Warsh said. "Quarterly earnings will now be down six quarters in a row. That's the first time that's happened outside a recession."
Warsh, who left the Fed in 2011, said he would not have raised rates in December, which was the first hike in more than nine years.
He praised Thursday's surprising decision by the Bank of England to hold interest rates there steady, in the face of global calls for a cut in borrowing costs to ward off a drag from Britain's vote to leave the European Union .
But he does expect a BOE rate reduction soon. "Brexit is a very convenient rationale [for world central banks] to provide more monetary support [and] provide fiscal support," Warsh said.
"Help is on the way. And the world's financial markets are recognizing that. Financial markets are higher ... than they would be if Brexit didn't exist," said Warsh, a distinguished visiting fellow at the Hoover Institution think tank.
The Fed's policymaking committee, scheduled to meet again later this month, should be looking to wind down the central bank's balance sheet, which has swelled to nearly $4.5 trillion after years of post-2008 financial crisis quantitative easing, he said.
"There's a scarcity of risk-free assets in the world. There is no good reason in my judgment why those should be on the Fed balance sheet," he said. "They think that balance sheet is keeping asset prices up."
If he were in Fed Chair Janet Yellen 's shoes, Warsh said: "I would say we'll be auctioning these Treasurys over to the markets, [saying] here's the fixed schedule. We'll be doing it three or four months from now, unless there are exigent circumstances."