Fed eyeing economic data attentively for far-off rate cuts

Federal Reserve Chair Jerome Powell reiterated that March is still too soon for interest rate cuts in an interview with 60 Minutes on Sunday. Other Fed officials have refused to comment on the timeline of future rate cuts, pointing to the need for consistent positive data prints.

Deutsche Bank Securities Senior US Economist Brett Ryan joins Yahoo Finance's Julie Hyman and Josh Lipton to discuss the Fed's forward guidance on economic data, also commenting on Powell's comments on the banking sector and commercial real estate.

"It's the next two to three months of core PCE and core CPI data that the Fed's going to be paying very close attention to, and the short-term trends... to see if they're still on the right track in terms of making progress towards their 2% goal," Ryan says.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JULIE HYMAN: Brett, what do you think the Fed is really waiting for when it says we want more good data? Is it just further confirmation that the robust labor market is not going to cause a resurgence in inflation. I mean, what's really going on here.

BRETT RYAN: Yeah, I think it's going to be the realized inflation data, most importantly. And you've seen that with their forecasts of the December meeting, how important of an input that was into their forward outlook. So it's the next two to three months of core PCE and core CPI data that the Fed is going to be paying very close attention to, and the short term trends the three month annualized, and six month annualized, to see if they're still on the right track in terms of making progress towards their 2% goal.

I mean, other factors, obviously, the labor market is great. I think that the near term doesn't seem to show much slowing even though the January jobs numbers probably a little large, and there might be some factors that have boosted it. But at this point, I think it really comes down to the inflation data.

JOSH LIPTON: And Brett, switching gears, I want to get your take on the commercial real estate market as well. Because it's interesting Powell on 60 Minutes talking about that issue saying, listen, he thinks small banks are going to close or merge because of that weakness. But ultimately said, listen, I think it's a manageable issue. How are you thinking about it?

BRETT RYAN: Yeah. It's definitely a risk that's out there to the regional banking sector. But it's also been a well known risk for a significant, a long period of time. So I think it's one where the Fed has been watching this sector really since 2016, and the valuations. It has asymmetric information when it comes to the regulatory side of things, and is probably keeping a close eye on the regional banks with the most exposure, and there's likely to be some pain to be felt.

Will it be systemic in nature is the key question, and we would agree at this point with the Fed that it doesn't seem to be a systemic risk to the banking sector as a whole. As, think about they changed their, we removed, in the last meeting statement, they removed the paragraph about the resilience of the banking sector, and that's an important sign of continued health.