Billionaire Barry Sternlicht Says Fed Is A 'Neutron Bomb' Using 'Steamroller' To 'Kill A Small Fly'

Billionaire Barry Sternlicht says the banking system remains under pressure and the economy is headed for not just a hard landing, but a crash landing. 

What To Know: Following the Federal Reserve's ninth straight interest rate hike, Sternlicht, co-founder, chairman and CEO of Starwood Capital, sees the economy as a speeding vehicle headed for a brick wall. 

The banks are facing significant pressure as a result of the Fed's historic interest rate hike response to high inflation. By raising rates again this week, the Fed is putting additional pressure on a system that is already riddled with insolvent regional banks, Sternlicht said Thursday on CNBC's "Squawk Box."

"You don't have to see the car hit the wall to know that it's going 8,000 miles an hour and it will hit the wall," he said. 

The Fed is using a "steamroller" to "kill a small fly," Sternlicht added.

Related Link: Almost Done: BofA, Goldman Sachs Expect Fed Hiking Cycle To End By Midyear Amid Banking Credit Crunch

The Starwood Capital CEO said there is good inflation and bad inflation, and wage inflation is good inflation. An economy with increasing wages is how capitalism is supposed to work, he said. 

"If I can't get a housekeeper or somebody to clean rooms in my hotels and I have to pay them $25 instead of $15, I have to raise prices and we can deal with that. That's wealth creation for the nation," Sternlicht said.

But the Fed wants to stop that from happening, and it's willing to kill the labor market to get there, he said. 

Sternlicht told CNBC he vetted six regional banks last week and found that they were all technically insolvent when factoring in all of their held-to-maturity books.

"One of them — I won't mention which one, you've talked about it often — we had a number of like negative $50 a share," he said. 

"You moved rates so far so fast that you had collateral damage and the Fed is acting like a neutron bomb. He's going to be standing and everything else will be blooded and dead in his way."

See Also: Schwab Impervious To A Bank Run? CEO Says Firm Is 100% Insulated If Depositors Flee

SPY Price Action: The SPDR S&P 500 SPY was trading 0.33% higher at $393.42 ahead of the close Thursday, according to Benzinga Pro.

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