NEW YORK (Reuters) - Billionaire investor activist Carl Icahn ramped up criticism of the U.S. Federal Reserve, warning about the unintended consequences of ultra low interest rates on the economy and financial markets.

"They don't understand the treacherous path they are going down," Icahn said in an interview with Reuters, in which he also declared his support for Donald Trump as a candidate to be the next U.S. president.

"God knows where this is going. It's very dangerous and could be disastrous," said Icahn, who has been a consistent critic of the Fed for keeping its benchmark interest rate close to zero since late 2008.

The Fed's loose monetary policies have pulled the U.S. economy out of crisis but the cheap credit has also fueled a corporate debt binge and a quest for yield among ordinary investors, who are buying riskier assets such as junk bonds to get a better return.

Icahn, a Wall Street veteran who made his fortune buying stakes in companies such as RJR Nabisco, Texaco, Phillips Petroleum, Lions Gate Entertainment Corp, Netflix Inc, Apple and eBay Inc and pushing their management to change their strategy, said that he is hedged against the possibility of a market meltdown.

"I got a huge hedge on against my long positions. So if you say, I am short, yeah, I am short big but then again, I am long bigger," Icahn said, acknowledging that he is a big beneficiary of the Fed's policies even as he criticizes them.

Icahn, 79, has a big bet on shares in Apple Inc, which have posted returns of about 12 percent over the last year, but also has holdings in energy companies such as Chesapeake Energy Corp and Cheniere Energy Inc, which are down 71 percent and 41 percent, respectively.

'Danger Ahead'

Icahn said he felt compelled to raise red flags about the state of the financial markets because he believes if more big investors had warned about subprime mortgage market in 2007, the United States might have avoided the crisis that strangled the economy the following year.

In a video entitled "Danger Ahead" and released on Tuesday, Icahn said the Fed's rate policy had enabled U.S. chief executives -- many of whom he describes as "nice but mediocre guys" -- to pursue "financial engineering" that he said has exacerbated an already wide gap between rich and poor in America.

Icahn, who slammed money managers who benefit from the so-called "carried interest" loophole under which their earnings are taxed as capital gains rather than ordinary wage income, also endorsed Donald Trump's presidential bid.

Trump unveiled a tax plan on Monday that he said would eliminate the loophole.

"Those guys who run these companies are borrowing money very cheaply, leveraging up their companies, using it to do two things … They are going in and they are buying back stock or even worse, making stupid takeovers," said Icahn, adding some recent acquisitions have been done at a too high a price.

"We've been on the boards of a lot of companies in a minority position to convince the boards to stop doing these takeovers and stop purchasing these companies. This is not to say that mergers shouldn't be done."

Icahn himself has been criticized in some quarters for pursing financial engineering by pushing Apple to boost share buybacks, although the activist has argued that with some $200 billion of cash on hand, the technology giant can easily afford to boost shareholder returns.

Icahn said he is particularly worried about ordinary investors buying debt sold by highly leveraged companies. This debt, often referred to as "junk bonds," offers a greater return but also a higher risk of default.

Much of this debt is bought via exchange-traded funds, a popular vehicle for trading baskets of bonds and stocks.

Icahn said retail investors had a false sense of security about how easy it would be to sell their holdings of such debt if the market turns.

"It's like a movie theater and somebody yells fire. There is only one little exit door," he said. "The exit door is fine when things are OK but when they yell fire, they can't get through the exit door … and there's nobody to buy those junk bonds."