Stephen Roach, Senior Fellow at Yale and former Chairman of Morgan Stanley Asia, spoke with CNBC's Martin Soong about whether the Federal Reserve has lost its way.

Of course, this writer thinks the Fed not only lost its way decades ago but has refused to acknowledge this and continues to flounder.

The late Robert Weintraub, the student of Milton Friedman who as a staffer for Sen. James Buckley, R.-NY, conceived the Humphrey Hawkins Act that provides for semiannual Fed testimony to Congress, used to say that the Fed lost its way whenever it departed from its core mandate of assuring stable interest rates, to “fight fires” that would occur from time to time in US and global financial markets.

Usually it would compound these other problems while losing track of the one contribution it could make.

Roach complained to CNBC that the Fed “continues to target inflation when there is no inflation" to target.

"So it justifies forever holding off on the long-awaited ‘normalization’ because there’s no meaningful inflation risk. That’s the last war; the Fed needs to turn away from targeting inflation and always worried about the next acceleration, which never seems to happen, and recognize the growing risk of financial instability, especially in emerging markets credit, which I think is a very big deal," he said.

"The IMF, in its global financial stability report just released, really draws a lot of attention correctly to that growing risk.”

Soong asked whether the Fed has “missed the boat” on raising rates, so when it finally happens, it’s going to be too late and potentially going to have catastrophic effects on pockets like dollar-denominated corporate debt here in Asia.”

On this point, this writer has suspected years that there are enormous exposures from potential “write downs and fire sales” in derivatives and other assets that IMF Managing Director Christine Lagarde, who has urged the Fed to hold off on raising rates, has continually warned about in her speeches.

Roach allowed that Soong made “a fair point,” but he insisted “the Fed has to utilize a little more courage and be more effective" in its communication strategy.

"You’ve got Janet Yellen saying ‘We’re definitely going to raise rates,’ and then you have two Fed governors (Tarullo and Brainard) dissenting. The last thing you need when asset markets are at risk is to have confusion in the direction of the Fed; that just builds the uncertainty and makes the ultimate event more disruptive to already-extended assets. So I think the Fed’s got to get its act together right now,” he said.

Soong pointed to credits spreads – “the widest they’ve been in about three years” – and suggested, as this writer has predicted, that “the market may have done most of the Fed’s work for it, so the Fed has yet another reason not to hit the ‘lift-off’ button.”

Roach dismissed this idea, arguing that if the Fed fails to act, “the spreads will come in, and the Fed will have accomplished nothing and will allow this fuse to burn for longer and longer. The case for ‘normalization’ is not based on inflation, but on having much better control of potentially unstable asset and credit markets. The Fed neglects that repeatedly, at great risk. This needs to be a focus of the Fed, not these newfangled macro-prudential policies.”

Roach says the Fed has the expertise but lacks the will to act.

This writer thinks the Fed will let the fuse burn through 2016.