June still a possibility for a rate cut: Fmr. Atlanta Fed Pres.

A "higher for longer" interest rate stance has rung true from the Federal Reserve for the past 6 months as officials steer inflation down to 2%. With hotter-than-expected inflation data rolling out the past few months, most recently with ISM's manufacturing PMI (Purchasing Managers' Index), there may be some doubt on Wall Street that interest rates will cut sooner than later.

Former Federal Reserve Bank of Atlanta President Dennis Lockhart joins Yahoo Finance to discuss the Fed's potential policy decisions moving forward and how it may affect the market.

In terms of where the Fed has landed on its rate cut consensus, Lockhart states: "It's a little bit more ambiguous than it was just a few weeks ago when they came out with the dot plot. I would say that the upcoming meeting, April 30 and May 1, I don't see them making any move. I think June is still a possibility. Depends a lot on the data that come in. But, as long as the economy is tolerating this level of interest rates and the progress is slow at best in disinflationary terms, I don't see them moving. I think they may push it back beyond June."

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 Nicholas Jacobino

Video Transcript

JARED BLIKRE: Higher for longer seems to be the name of the game. At least, that's what some investors are starting to believe. We got job openings data out this morning, coming in at 8.76 million for the month of February. Just above the 8.73 million that was expected.

Now, this follows hotter than expected manufacturing reading. All of this now casting shadows of doubt that the Federal Reserve will cut rates as the US economy shows surprising resilience.

For more on the Fed's path to rate cuts, we're joined by Dennis Lockhart, former Federal Reserve Bank of Atlanta President. Dennis, thank you for joining us here today.

We've heard a lot of Fed speak recently. Powell was out last week. What's your sense of where his mind is right now? We've seen rate cuts take off the table steadily, steadily. But we still have stocks near highs.

DENNIS LOCKHART: I think he's keeping his options open. But I think his message is that they're going to be cautious. They're going to be patient that there is no rush to start a cycle of rate cuts.

And, overall, their resolve continues to be very strong. And they're going to get it right. So that means that the clock could run for quite some time.

MADISON MILLS: Well, how committed are they though to an exact number. When it comes to inflation? Are they still looking at a tight 2%? Or are they looking for a little bit more of a range? And I ask because it does feel like Powell's commentary has shifted a bit from, I'm willing to cause pain in the economy to I'm willing to wait.

DENNIS LOCKHART: The target is 2% according to a certain index, the PCE index, over the long run. And no one on the committee thinks that they're going to stick their landing perfectly at 2%.

So it is realistically or pragmatically a range around 2%. But I think they would say that the current pace of inflation is above that range. So they still have some more work to do.

There is an aspect of your question that's worth commenting on. And that is, I do not see them changing the target. There's been a lot talk about that. There's a lot of people who think they should just settle for 2.5% or 3%. I don't see that happening.

JARED BLIKRE: We've been talking about inflation here. I want to ask all-- I want to get your comments on the JOLTS data that we saw this morning. A little bit hotter than expected. But really, the market looking ahead to Friday, which is a big monthly payrolls number, which is surprised to the upside to find a lot of expectations to the upside. Does the resilience continue?

DENNIS LOCKHART: Yeah resilience, which is capturing the notion that the economy remains strong. The economy is tolerating this level of interest rates. There's been no real break in the trend, either in the labor market, which is important, I think, to the committee, or in growth.

This morning, I looked at GDP now. The Atlanta Fed's tracker of the first quarter, 2.8%. That's down from the fourth quarter of last year. But it's still an extremely solid growth picture. So for now, the economy remains resilient.

MADISON MILLS: When does that resilience start to beg a question about whether or not rates are impacting this economy?

DENNIS LOCKHART: Boy, I think that is a question that has already been asked. And there's been analysis around that question suggesting, for example, that the mortgage rates are not adequately discouraging housing decisions. And that a lot of people are benefiting from having locked in-- companies are benefiting from having locked in financing at lower rates in earlier months.

And, therefore, the economy is more impervious to this level of interest rates. And I think there's something to that argument.

JARED BLIKRE: I want to ask you about Japan. And just maybe put your central banker hat back on. You were in the industry at the Federal Reserve for years. And the Bank of Japan facing a currency, the yen, which is at 30 or 40 year lows versus a US dollar.

Every time they come out with a counter, I guess, a counter policy to whatever they're seeing in the market, which is usually currency devaluation, that's walked back pretty quickly by the market. Are they in a box? How do you see this situation evolving?

DENNIS LOCKHART: I'm not an expert. I don't follow Japan as closely as your question would require. But I would say, they are trying to break out of a box. And that box is one in which they use the tool of negative interest rates for quite some time.

They have been on the cusp of deflation, on and off deflation for several years and have been trying to get the inflation rate up. They've given up on negative interest rates. They are projecting higher inflation. Maybe, that the interest rate picture will create a little bit more demand for the yen, both domestic and foreign. I don't know.

But they're really trying now to break out of a policy environment they've been in, as well as push their economy to higher levels of growth.

MADISON MILLS: So extrapolate out for me, Dennis, what you are thinking about the Federal Reserve's moves throughout the rest of this year. What percentage chance would you put on a June rate cut? And what does that mean about what you're thinking about the number of cuts we might be able to anticipate for the rest of the year?

DENNIS LOCKHART: It's a little bit more ambiguous than it was just a few weeks ago, when they came out with the dot plot. I would say that the upcoming meeting, April 30 and May 1, I don't see them making any move. I think June is still a possibility. It depends a lot on the data that come in.

As long as the economy is tolerating this level of interest rates, and the progress is slow at best in disinflationary terms, I don't see them moving. So I think they may push it back beyond June. It still gives them four or five meetings in which to move before year end.

One interesting factor, because it's on so many people's minds, is the November meeting is after the election. It's not just before the election. So they have the luxury of not being accused of being political by simply doing something at the November meeting.

MADISON MILLS: Really quickly, Dennis, on a 1 to 10 scale, 10 being the most likely, how likely do you think it is that they wait until after the election results to change?

DENNIS LOCKHART: It depends a great deal on how the data play out. I certainly would not give it zero probability. I think it's probably less than 50% now. That's a way of saying they're likely to start earlier. But I can't rule it out that they'll wait until November or December even before they begin to ease.

MADISON MILLS: I appreciate the data-dependent talking points, as always Dennis. Thank you so much. That was really informative.

Dennis Lockhart, former Atlanta Fed President joining us to talk all things Federal Reserve. Appreciate it.