The Federal Reserve may be saying it could raise rates again this year in its fight against inflation, but one investor is convinced it won't happen.
On Thursday, Fed Chair Jerome Powell reiterated to lawmakers that the central bank expects to raise interest rates one or two more times this year, but at a slower pace to avoid tipping the economy into recession.
"The Fed will not raise rates again this cycle," Hugh Hendry, investor and former hedge fund manager, told Yahoo Finance. "They're done."
"I don't wish to show them [the Fed] any lack of respect. They have an impossible task," he said, "But there is a sizable component of the Fed members who recognize the ominous signs emerging from the domestic banking sector."
Hendry points to the failures of Silicon Valley Bank and Signature Bank in March, followed by First Republic's rescue by JPMorgan, and the shotgun tie-up between Credit Suisse and UBS. He adds the banking turmoil "is not over."
"You typically get bankruptcies when credit costs escalate and...it reveals the folly that is yet to happen," he added. "A recession is brewing onshore in the U.S."
Hendry says smartphones have made it easier than ever for depositors to transfer money out of bank accounts and into higher-yielding instruments such as US Treasuries. Lower deposits and tightening credit conditions are challenging the banking system.
Read more: How to find the best high-yield money market accounts for June 2023
"Banking as we understand it is no longer viable," he said, "I'm not sure what happens next and...what banking 2.0 looks like, but banking 1.0 is kaput."
Commercial real estate is seen as the likely next shoe to drop in the economy, with lending for that sector tanking.
"We believe the chance of a soft landing is unlikely," Megan Horneman, chief investment officer at Verdence Capital Advisors, recently said in a note to investors.
The strategist pointed to deteriorating balance sheets and cracks in the labor market while "commercial real estate is imploding and banking stress remains."
Ines is a senior business reporter at Yahoo Finance. You can follow her on Twitter @ines_ferre
Read the latest financial and business news from Yahoo Finance
