Sheila Bair, the former FDIC Chair, cautions against relying on rate cuts to spark market optimism.

According to former FDIC Chair Sheila Bair, market optimism about the possibility of interest rate cuts next year is overstated.

During the 2008 financial crisis, Bair, who headed the FDIC, believes that Federal Reserve Chair Powell acted recklessly at the recent policy meeting by inciting "irrational exuberance" among investors.

Bair stated on CNBC's "Fast Money" on Thursday that the emphasis should still be on inflation, as there is a long way to go in the fight against it. She expressed concern that the Fed may be blinking and attempting to pivot to worry about recession, but she does not see any risk of recession in the data so far.

The Fed announced an expectation for at least three rate cuts next year totaling 75 basis points, and the markets responded positively.

The blue-chip index and the have both reached their longest weekly win streaks since 2019 and 2017, respectively, and are now 115% above their Covid-19 pandemic lows.

The Fed's bullish market reaction is temporary, according to Bair.

Bair stated that this is a mistake and believes that they should keep their eye on the inflation ball and tame the market, not reinforce it with this dovish dot plot. His concern is the possibility of significant lowering of rates in 2024.

Bair still views prices for services and rental housing as significant challenges. Additionally, she is concerned that deficit spending, trade restrictions, and an aging population will contribute to inflationary pressures.

Bair advised that rates should remain stable as there are positive trend lines. It is necessary to exercise patience and monitor the situation closely.