Despite the lingering uncertainty, investors remain hopeful that the Federal Reserve will decide to cut rates in the near future. Joining the Morning Brief, State Street Macro Multi-Asset Strategist Cayla Seder discusses why she believes consumer resilience will drive the Fed's decision on rate cuts.

Seder suggests a rate cut could materialize in 2024, although "the biggest risk for markets right now" is if the cut comes too soon. She notes that consumers remain resilient despite the inflationary environment.

According to Seder, the upcoming release of the Consumer Price Index (CPI) data next week is crucial for gaining insights into the consumer's state. She will look for "a rollover in inflation and a move lower in inflation numbers," coupled with continued consumer resilience.

When assessing the markets, Seder cautions that "the progress on inflation is likely going to be very slow." Therefore, she advises investing in sectors like technology and communications, which may offer opportunities amid the current economic landscape.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video Transcript

Features pointing to a higher open on Wall Street investors optimistic that comments from fed officials suggest that the central bank is still on track to cut rates this year, which was echoed by Lynn of Fed President Rafael Bostic in an interview today, our next guest saying that the consumer can make or break the feds next move.

For more on this.

We want to bring Kayla Setter State Street, Macro Multi asset strategist is here, Kayla, it's great to have you here.

So let's talk about what we're hearing from Fed officials this week.

Certainly, it seems like investors, at least traders still remain hopeful that we are going to get that rate cut here in September.

What's been your take away from the commentary that we've gotten so far?

Yeah, you know, I think it is likely we could still see a cut this year.

However, I think the biggest risk for markets right now is that they're going to bring forward that cut far too soon because what we've seen is that the consumer is still an aggregate resilient.

You know, there are signs that some consumers are feeling pain and that's actually a good thing.

That means that the transmission of policy is working, however, that transmission is really slow.

And so I think that's why we've seen a lot of fed speakers kind of echo this message of patience.

Yeah, we're going to beginning preliminary consumer sentiment reading later on this morning here, Kayla, what, what are you going to be watching most notably for in the moderation in this consumer mindset, especially as it dovetails through to some of the economic data that's coming next week on CP I Yeah, you know, I think the data we get today is important, but the data for next week is even more important.

You know, we do still want to see consumer sentiment roll over just a little bit, I'd say.

However, I think next week, what we're really looking for is a, is really a rollover in inflation and a continuation in a move lower in inflation numbers.

And actually when we look at some of the data that we can see in terms of price stats, which is online, goods inflation, uh we're seeing that some signs of softer data coming in and that's really important because if you think about the progress so far on inflation, it's really been concentrated in the good space.

And so what that means is to get further improvement, we can't see goods re accelerate.

And we finally need to start to see signs that the consumer is weakening in a way that it impacts the services side of inflation.

When you take a look at the recent market action, we have certainly started to see investors maybe get a bit more defensive given some of that uncertainty that we've been talking about here over the last several weeks.

What is the last the movement here that we've seen towards consumer staples and really towards utilities?

What do you think that further tells us then about the market leadership that will likely see, you know, I think moving forward from here, we still really priority, prioritize large cap quality growth.

We're not tempted by moves to go to small caps or even some slices of um you know, more, I'd say value just because if we think about it, the progress on inflation is likely going to be very slow.

And so what that means is we're going to be in an elevated for longer environment, I think than some folks may, may anticipate.

So we really are seeing the most opportunity uh in places like tech and places like communications.

And so we see leadership ultimately remaining there even though I do know the past week or so, we have seen a couple of adjustments.

We still prioritize the places that look best equipped due to balance sheet strength and things like that to really navigate this interest rate environment for longer.