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The prospect of interest rate cuts has been "poured with cold water" again! Former Chairman of FDIC: The Federal Reserve triggers irrational optimism

吖咩嘚咩s
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Former Chairman of the Federal Deposit Insurance Corporation (FDIC), Sheila Bair, recently warned that the market's optimism about the possibility of a rate cut by the Federal Reserve next year is excessive. She believes that the Federal Reserve has triggered irrational optimism in the market about interest rate cuts.
Bayer took over the FDIC during the 2008 financial crisis. She stated that Federal Reserve Chairman Powell irresponsibly displayed a dovish attitude at last week's policy meeting, creating "irrational prosperity" among investors.
After maintaining interest rates unchanged for the third consecutive time last Wednesday, the Federal Reserve expects to cut rates at least three times next year, totaling 75 basis points. Federal Reserve Chairman Powell also stated that although it is still too early to announce victory, it is time to consider the appropriate timing to reduce tightening.
After the Federal Reserve issued its interest rate decision, the market moved accordingly. The Dow Jones index hit a historic high in the last three days of last week. The blue chip index is currently in its longest weekly winning streak since 2019, while the S&P 500 index is in its longest weekly winning streak since 2017. At present, the benchmark index is 115% higher than the low point of the COVID-19 pandemic.
It is worth noting that Bayer is not the only financial person who has recently poured cold water on the prospect of interest rate cuts. Last week, strategists at Wells Fargo Bank also warned that the stock market's bet on the end of the Federal Reserve's tightening policy was too much. Previously, the world's largest asset management firm BlackRock and Goldman Sachs also issued similar warnings.
Last Friday local time, the third in command of the Federal Reserve and Chairman of the New York Fed, Williams, stated that the Federal Reserve is not really discussing interest rate cuts and will continue to raise rates if necessary. This statement undoubtedly poured a bucket of cold water on the market, and they speculated that Williams may have felt that the market was too fanatical and intentionally cooled down expectations for interest rate cuts.
The battle against inflation still has a long way to go
"The focus still needs to be on inflation," Bayer said in a media interview recently. "There is still a long way to go in this struggle. I am indeed concerned that they (the Federal Reserve) may be a bit hesitant, trying to turn and worrying about an economic recession, and so far, I have not seen any such risks from the data."
Bair said she believes the market's bullish response to the Federal Reserve is short-lived.
"This is a mistake. I think they need to closely monitor inflation and tame the market, rather than using this kind of... pigeon pie chart to reinforce it," Bayer said. "I am concerned about the prospect of a significant reduction in interest rates in 2024."
Bayer still believes that the prices of services and rental housing are serious and thorny issues. In addition, she is concerned that budget deficits, trade restrictions, and an aging population will also cause serious inflationary pressures.
"The interest rate should remain unchanged. We have a good trend line. We need to be patient and observe the development of the situation," she said.
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