The Federal Reserve won't end up raising interest rates as aggressively as projected, said Jim Grant, editor and founder of the venerable Grant's Interest Rate Observer newsletter.

"I think the Fed will definitely blink," Grant told CNBC on Tuesday. "I don't know when it will reverse course; I suspect sooner rather than later."

Grant said on "Squawk on the Street" that investors will know the Fed is "blinking" when they hear it. "We are going to be data dependent; we are concerned about where growth [is]; we are stepping back from time to time ... and we are watchful waiting. That is what it is going to sound like."

Rate concerns continued to pressure the stock market Tuesday, with the briefly dipping into correction territory and testing the crushing October lows of just over the 2,600 level.

The recent sell-off started after Fed Chairman Jerome Powell said early last month that rates were a long way from neutral, sparking questions about whether Fed officials were going to increase the cost of borrowing money more than forecast.

The Fed is expected to raise rates again in December, on top of the three moves already on the books in 2018. After its most recent hike, the Fed projected three rate increases for next year.

However, some of the recent central bank chatter seems to indicate that a slower path higher for rates may be under consideration as economic activity around the world slows.

Last Wednesday, Powell said there's been "a gradual chipping away" at global growth, and what happens internationally matters. The same point was made two days later by Fed Vice Chairman Richard Clarida, who told CNBC the global economy deserves attention, and it looks like it's slowing.

"When the Fed steps back, citing the difficulties of slowing world growth, I think the Fed would be slower to dispose" of the more than $4 trillion in assets that remain on its balance sheet, Grant said. Such a move would also act as additional easing.

— CNBC's Patti Domm contributed to this report.