December jobs data blew past Wall Street's expectations, adding 216,000 jobs to the US labor market last month. Does this reshape the Federal Reserve's 2024 plans for interest rate cuts and what should the biggest takeaway be for investors?

PIMCO Market Strategist and Portfolio Manager Tony Crescenzi joins Yahoo Finance Live to talk about the Fed's inflation outlook after the first week of 2024 while sharing advice about bond market investments.

"Perhaps you're worried about falling bond prices recurring, so don't catch a falling knife, but do catch these yields while you can," Crescenzi advises, adding: "Don't fight the Fed in 2022 meant run for the hills. In 2023 and 2024, it should mean believing in its ability to foster price stability."

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

JOSH LIPTON: And, Tony, when they cut, is that because they're going to see, OK, inflation is going to return to our 2% target, it's going to stick there, and because they see the slowing economy? And what are the reasons you think they're going to cut?

TONY CRENSHAW: Hi, Josh. And I think that the importance of story would probably be the rise in the real interest rate. So, of course, the Federal Reserve has its policy rate, call it around 5 and 3/8, so range between 5 and 1/4, and 5 and 1/2, stated range, 5 and 3/8. But the inflation rate has been falling. So in other words, the difference between the policy rate, the 5 and 3/8, and the inflation rate is widening, which historically means that the Federal Reserve policy is getting tighter. We should add to that there are other factors.

And the Federal Reserve Bank of San Francisco tries to measure these factors and relates to quantitative tightening, the selling or letting the balance sheet runoff occur at the Fed plus communications. Those factors combine, the 5 and 3/8 plus some effect or some equalization, if you will, to the funds rate from quantitative tightening might put the funds rate in the 60s according to the San Francisco Fed. So policy is pretty tight.

So, Josh, the point is, again, the real interest rate is rising historically even in the Volcker period when the Fed was facing a major battle against inflation. It guided the policy rate lower, but it kept the real rate steady. In fact, if you care, it was a 5% real interest rate back then that got the job done. So that's one of the key stories here.

JULIE HYMAN: Well, this makes things difficult for investors, I would think, right? This is sort of a tricky period here while we're waiting. And in some of the commentary you sent us said, you have three don'ts for bond investors right now. Just briefly tick through those for us.