• The Federal Reserve raised rates by one-quarter of a percentage point on Wednesday.
• While this may be the Fed's final rate hike in the current monetary policy cycle, it may be one too many, according to CFOs from across the economy who serve on the CNBC CFO Council.
• They tell CNBC that the consumer is weakening even at the higher income end, credit delinquencies are sharply higher, and there is greater risk of a steeper rise in unemployment.

The labor market is still tight, but hiring is cooling and job losses are going up. The yield curve has been flashing recession for quite a while already, and the index of leading economic indicators is having one of its worst runs ever.

But the Federal Reserve has a one-track mind at the moment: inflation is still the sole focus, and after last week's personal consumption expenditures price index report showed prices again edging up, and the latest job addition numbers surprised to the upside, the Federal Reserve hiked rates on Wednesday. That was the market expectation – there was unanimous belief in this week's CNBC Fed Survey from economists and money managers that a one-quarter of a percentage point hike was coming. 

But inside major corporations, executives say they see signs of mounting trouble for the economy and as another interest rate hike looms, it may be time for the Fed to stop. That was the tone of a call held by CNBC's CFO Council on Tuesday with chief financial officers across many sectors of the economy. The call, conducted on background to allow CFOs to speak freely, finds CFOs at major corporations increasingly concerned about the health of the consumer and the Fed's narrow focus on fighting inflation as conditions deteriorate.

The Fed's language in its release on Wednesday from its FOMC suggested that rate hikes may be coming to an end — which was also an expected message.

One concern voiced by CFOs is that the top end of the consumer market has been masking deeper problems in the economy, with companies tracking a rise in credit delinquencies, and that is now starting to spread. Stress in consumer lending, which has been rising sharply since May of last year, was concentrated in the lower FICO segments, but a year later, credit weakness is showing up in the prime sector, among consumers with higher credit scores, as well. Across the FICO bands, there has been a recent increase of between 40% to 60% in higher delinquency levels in installment lending, according to data shared on the CNBC CFO Council call.

As more cautious lenders operating in the prime space have pulled back aggressively on originations, from credit unions to the big consumer financial services players, non-prime lenders have been picking up higher FICO score credit. While that's good for them, it also means "we're definitely moving towards a slowdown," one CFO said. "They are trying to fight a problem but there's evidence around the U.S. that says the economy is slowing. Give it time for things to take hold. You just don't want to keep hiking into that environment."

Some notable voices from among former Fed officials have been sending a similar message, including former Boston Fed president Eric Rosengren and former Dallas Fed president Robert Kaplan, who recently said it was past time for a pause.

Some problems cited by CFOs with the consumer have been well known and well-tracked for a while already, including consumers pulling back from discretionary spending to non-discretionary essentials, and the stimulus savings for lower-income Americans already being drained. But even as inflation in groceries, utilities, and rents is moderating, and even as unemployment remains low, recent data on hours worked shows a decline and that means smaller paychecks being stretched further. "That's concerning," said one CFO.  

"I'm worried about the damage it's doing," said another CFO of the Fed's continued interest rate hikes. "When unemployment comes, it's gonna go up and down the risk spectrum," the CFO said, referring to all FICO score-based consumer buckets.

While CFOs said they understand the conundrum the Fed is in because inflation is stubborn, they are equally concerned that the data which the Fed is focused on is "a little bit lagged," one CFO said. One example is energy prices, which have come down. "I don't know if [the Fed is] thinking about that. … they're going to raise .. but I do believe we're at a point where it's probably good to pause and see how this plays out over the next three to six months."

The better-off consumer is also beginning to become more cautious, with evidence of a slowdown in "discretionary big ticket items," CFOs said, or purchases of over $100.

The slowdown in the consumer is being seen in how much product is moved through the national supply chain, according to CFOs, where softening demand and the freefall in housing, and all of the goods that go into housing, "is really slowing down," said another CFO. "We've been seeing it for a couple of months now."

"Beyond just inflation and unemployment, there's a number of other things, whether it's industrial production, housing; those signs are already there that the economy has moved," one CFO said.

"There's a message of cautiousness that I think I've heard that this may be the time to pause, and really watch. Otherwise there'll be a bit of an abrupt stop," another CFO said.

The Fed is fixated on the employment level, and decided early in this inflation fight that if it is going to break the back of inflation, it has to "break the economy," and create some level of unemployment, and labor market dislocation. While the labor market remains tight, and the layoffs in tech aren't representative of the economy as a whole, CFOs said the central bank should be looking forward at this point and putting more focus into how quickly the job market could tip. "I do think there's a lag on this … and I think they have to be careful not to go too far here," another CFO said.

"It's apparent everybody wishes the Fed would stop raising rates," said another CFO. "I don't think that's going to happen primarily because Chairman Powell has said inflation fighting is the No. 1 thing and we as a society and the government and Congress, basically handed the responsibility of managing inflation to the Fed."

Manufacturing backlogs doubled over the last year and a half, according to CFOs, and the Fed can solve for the influence that has had on inflation by continuing to raise rates, "basically destroying demand" said one CFO. That's already resulted in a manufacturing sector that has been in contraction for the past six months, according to the Institute for Supply Management. "So we're basically forced into the situation. My prediction is by the end of this year, the Fed funds rate will be at 6%. We will be heading into a recession in Q4. And I don't think they're going to lower rates, at least until the end of 2024," the CFO said.

After Wednesday's hike, the federal funds rate was expected to maintain a target range of 5 to 5.25%.

While there is a case in the inflation numbers for the latest hike, the market is likely to react to any hawkish commentary from the Fed negatively given concerns about the banking sector and economy, the recent GDP slowdown, and the market's bet on a Fed soon enough to be in cutting mode, even though the CNBC Fed Survey shows a belief from economists and money managers that the Fed will hold rates higher for eight months.

A more fundamental question is whether the Fed can continue its monetary policy path of fighting inflation with one hand while it performs its supervisory role over the banking sector with the other. The report released last week by the Fed about its own failures in the case of Silicon Valley Bank didn't help to answer this question. The three bank failures and the need to create a special liquidity fund could be defined as a "success" from the Fed's point of view, in creating tighter lending conditions and slowing the economy. Or we are learning the Fed should have put monetary policy more in concert with supervisory policy, and earlier.

The Fed report indicated that SVB had 31 open supervisory findings when it failed in March, about triple the number observed at peer firms, and covering core areas such as governance and risk management, liquidity and interest rate risk management.

"We're headed in the wrong direction, because we only have one tool to use to try to fight inflation," the CFO who is predicting a recession in Q4 said.