In an interview with the Times of India published Tuesday, Damon warned that if the Fed was forced to continue raising interest rates to cool inflation, it would hurt.

"I'm not sure if the world is ready to face interest rates at 7 percent," Damon told the newspaper.

Damon made the remarks while attending the JPMorgan investor summit in Mumbai, India.

These comments added to the ongoing tension on Wall Street, which was largely fueled by concerns about the Fed keeping interest rates high for longer.

At the close of Tuesday's session, Wall Street suffered sharp losses, with the Dow Jones down 388 points, or 1.14 percent. The Nasdaq lost 1.6 percent.

Since early last year, the Fed has rapidly raised interest rates from near zero to just over 5 percent.

JPMorgan CEO Jamie Dimon said: "I'm asking business workers: 'Are you ready for a 7 percent rate? The worst case is 7 percent with stagflation," he said, adding, "If they had lower volumes and higher interest rates, there would be pressure on the system... We urge our customers to prepare for this type of stress."

JPMorgan CEO quoted legendary investor Warren Buffett as famously saying: "Only when the tide recedes, you know who was swimming naked." In other words, deflation reveals who is taking a lot of risk.

Damon warned that two more percentage points from the rate hike would be "more painful" than the last two, adding: "This will be the trend that will recede."

While Damon is floating interest rate risk by 7 percent, this is not something that Fed officials themselves have publicly acknowledged.

Last week, Fed officials issued forecasts suggesting that rates will only be raised once this year before cutting rates next year.

The futures market is pricing with a small probability that prices will reach 6 percent, let alone 7 percent.

In an interview with The Times of India, Damon addressed the series of failures of US banks earlier this year. When JPMorgan acquired First Republic Bank after its collapse.

"I don't think we want a system where no bank ever fails, so having a bunch of failures is not terrible," Dimon said.

"But if it causes chaos in the banking system, we have to amend regulations to prevent that from happening."