Markets already know the Federal Reserve will deliver more rate hikes this year. They're just not prepared for how much it will hurt, according to Peter Boockvar, chief investment officer of Bleakley Advisory Group.
"The Fed is trying to ease the effect of their rate hike cycle by being very transparent," Boockvar told CNBC's "Futures Now" this week. It is "trying to convince us that quantitative tightening is like watching paint dry."
Fed chair Jerome Powell is carrying on Janet Yellen's legacy of full transparency by prepping the markets as best as he can for inevitable monetary tightening. The Fed's message of 'steady-as-she-goes' rate increases has calmed Wall Street into thinking this will mostly be a smooth path higher.
Boockvar expects tighter monetary policy will have a far greater impact than the Fed is telegraphing, and the market is anticipating.
"Regardless of how they tell us, regardless of how they do it, there's still a rise in the cost of capital, there's still a drain of liquidity," he said.
He used a colorful analogy for the shock the markets will be dealt, even with the Fed's fair warning.
"If I gave you a month's notice that I'm going to punch you in the face, when I punch you in the face, it's still going to feel the same, it's still going to hurt," he said.
Even worse, it's more like two blows: While the Fed hikes interest rates, it's also shrinking its balance sheet, Boockvar points out.
"The biggest risk to the market is that they're really tightening twice through the reduction of the size of their balance sheet," said Boockvar.
The Fed is currently unwinding its $4 trillion-plus balance sheet at an ever-increasing pace. The central bank's purchases of mortgage-back securities spiked in late 2008, marking the beginning of the first round of quantitative easing under then-Fed chair Ben Bernanke.
"At the same time, they'll likely raise two more times this year, so the rise in interest rates to me is very noteworthy," said Boockvar. "In a very over-levered, credit-dependent economy, that is my main concern because it's very rare that the Fed engineers soft landings, and I'm not a believer that they're going to do it again this time."
Of the last 13 rate hike cycles, 10 have resulted in a recession, says Boockvar.
Markets are taking another 25 basis-point hike from the Fed at its June meeting as a near certainty, based on CME Group fed funds futures. The Fed last tweaked rates at its March meeting.
The rest of the year is less clear. A third rate hike for 2018 could come in September, but the chances of a fourth in December are at less than 41 percent.
Boockvar asked: "The question is when does the rise in interest rates begin to have an effect on the economy? As I said, we are very credit-addicted, credit-dependent economy that will be affected by a continued rise in interest rates if this trend persists."
The personal savings rate increased 3.1 percent in the first quarter, nearly half the rate of the first quarter three years ago, according to the U.S. Bureau of Economic Analysis. Meanwhile, the Fed reported a preliminary growth rate of 4.2 percent in outstanding consumer credit in the first quarter.
The U.S. economy rose by 2.3 percent in the first quarter, higher than estimates but weaker than 2.9 percent growth in the fourth quarter.