Former Dallas Federal Reserve President Richard Fisher sees the potential for a market correction of "substantial magnitude" as traders have grown "lazy," he said on Friday.

"Are we vulnerable in my personal opinion to a significant equity market correction? I do believe we are, and the reason for that is people have gotten lazy. They've depended totally on the Fed," he told CNBC's "Squawk on the Street."

Fisher retired on Thursday, having occupied the Dallas Fed's highest office for the last decade. Regarded as a policy hawk, he frequently said the central bank should raise interest rates sooner rather than later.

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The Federal Reserve has kept its federal funds rate close to zero since December 2008, flooding the market with liquidity. In a statement on Wednesday, it said it was unlikely to begin raising rates at its meeting in April.

Fisher brushed aside the idea that the Fed is responsible for conditioning laziness among traders by setting easy monetary policy, saying little is being done in terms of fiscal policy, which forced the central bank to keep rates abnormally low.

"Yes, we have ... conditioned the markets. I think the markets, however, have a responsibility to do their own work and expect that as the economy improves, things are going to change. Over time the [Fed Chair Janet] Yellen committee will engineer normalization, however long that takes, and I think the market should get prepared for that," he said.

In the event of a market correction, the Fed should not intervene because the market is "hyper overpriced," he said.

Read MoreMarkets shrug off Fed move—Is that a mistake?

