A prominent financial services CEO warns that the economy has not yet fully absorbed higher interest rates.

Thomas Michaud, who heads Stifel KBW, notes that there has been a delayed market reaction since the last hike, calling a 25 basis point move to 5% a very different situation than a half-percent drop.

“It’s becoming a real deal at this point because of the level of rates,” he told CNBC.Fast money” on Wednesday. “The bite of these higher rates is gaining ground almost every day.

Michaud delivered the call hours after the Federal Reserve decided to keep interest rates unchanged. It comes after ten consecutive rate hikes.

The Fed signaled two more hikes on Wednesday they are ahead this year. Michaud expects one to happen in July. But he questions whether politicians will raise rates a second time.

“Trying to deliver a new message with these dots is not what I’m willing to hang my hat on from what I see happening in the economy,” he said. “The economy is slowing down. So I think we’re near the end of this rate hike cycle.”

It lists interest rate-sensitive areas of the economy that are already in recession: Office space in urban areas, origination of housing mortgages and income from investment banking. The problems, he said, are contributing to more pain in regional banks.

“Banks were already tightening in the fourth quarter of last year. It didn’t just start in March. Credit growth was slowing down,” added Michaud. “There are elements like the global financial crisis that are in bank stocks right now.”

According to Michaud, the rally of regional banks is a short-term rebound. The SPDR S&P Regional Banking ETF up nearly 18% over the past month.

“The overall recovery of the industry for all participants probably won’t happen until we get more stability in what we think revenues will be,” Michaud said. “Earnings estimates haven’t leveled off. They haven’t stopped falling.”

In the second half of this year, he sees a shift from adjusting to the new interest rate environment to credit quality.

“Prior to the first quarter, we cut bank estimates by 11%. After the quarter, we cut them by 4 percent.” Michaud said. “My instincts are to cut them down again.


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