Bill Ackman warns the US economy is heading for a 'train wreck' as the Fed hikes interest rates again

• Bill Ackman highlighted risks to the economy and smaller banks as interest rates keep rising even with a banking crisis.
• The billionaire investor warned the US economy is heading for a "train wreck" as the Fed raises rates again.

Billionaire investor Bill Ackman fears the US economy is heading for a "train wreck" as the Federal Reserve presses ahead with interest-rate hikes – and Treasury Secretary Janet Yellen throws cold water on plans to support depositors.

"When combined with the higher cost of debt and deposits due to rising rates, consider what the impact will be on lending rates and our economy. The longer this banking crisis is allowed to continue, the greater the damage to smaller banks and their ability to access low-cost capital," Ackman said in a tweet on Wednesday, following the Fed's move Wednesday to raise rates by 25 basis points.

"Trust and confidence are earned over many years, but can be wiped out in a few days. I fear we are heading for another a train wreck. Hopefully, our regulators will get this right," he added.

The central bank lifted its benchmark rate to a 4.75%-5% range Wednesday as part of its continuing fight against inflation.

The decision comes after weeks of uncertainty about how the Fed might respond to the recent banking turmoil, which saw the implosions of Silicon Valley Bank (SVB) and Signature Bank in the US, and the government-backed takeover of Swiss banking giant Credit Suisse by UBS in Switzerland.

Small and mid-sized US banks, including First Republic and PacWest, are also feeling the heat from the spreading banking contagion from SVB's collapse and the Fed's aggressive monetary policy.

Since the failure SVB, people have moved $500 billion from smaller lenders to safer havens, such as money market funds and big banks, as they grow nervous about how much of their money will be guaranteed by the FDIC, according to JPMorgan.

Market commentators including Ackman have urged for further federal intervention to prevent the crisis from getting worse. The Pershing Square chief himself said the FDIC should guarantee all uninsured US deposits to "stop the bleeding," in another tweet.

Yellen, who previously made assuring comments about providing further support to regional banks, said Wednesday that she has not considered plans to guarantee all US deposits, per CNBC.

"The longer the uncertainty continues, the more permanent the damage is to the smaller banks, and the more difficult it will be to bring their customers back," Ackman said.