Market optimism about the possibility of interest rate cuts next year is seriously overstated, said former FDIC Chair Sheila Burr.
Baer, who ran the FDIC during the 2008 financial crisis, suggested that Federal Reserve Chairman Jerome Powell was being irresponsibly pessimistic at a policy meeting last week by creating “irrational exuberance” among investors.
“The focus remains on inflation,” Baer told CNBC’s Fast Money on Thursday. “There’s a long way to go in this fight. I’m worried they are as well [the Fed] “It’s flashing a little bit and now I’m trying to focus and worry about a recession, whereas I don’t see any of that risk in the data yet.”
After keeping interest rates steady on Wednesday for the third time in a row, the Federal Reserve set its expectations for at least three interest rate cuts next year totaling 75 basis points. The markets took place with him.
The Dow Jones hit all-time highs in the last three days of last week. The blue-chip index is on its longest weekly winning streak since 2019 while the S&P 500 is on its longest weekly winning streak since 2017. It is now 115% above the Covid-19 pandemic low.
Bayer said she believes the market’s bullish reaction to the Fed has come on borrowed time.
“This is a mistake,” Baer said. “I think they need to keep their eye on the inflation ball and tame the market, not boost it with this… easy plan.” “What worries me is the possibility of a significant cut in interest rates in 2024.”
Baer still sees utility prices and rental housing as serious sticking points. In addition, it is concerned that leveraged spending, trade restrictions and an aging population will create significant inflationary pressures.
“[Rates] It must stay in place. We have good trend lines. “We have to be patient and watch and see how things go,” Bayer said.
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