Inflation cooled in May, according to the latest Consumer Price Index (CPI) print that saw prices remain unchanged month-over-month while rising only 3.3% annually. Both figures were below estimates.

Wells Fargo Chief Corporate Economist Tendayi Kapfidze and Academy Securities Head of Macro Strategy Peter Tchir join Yahoo Finance's Morning Brief to talk about what this cool inflation print means for the Federal Reserve's interest rate policy. Fed officials are set to announce their June policy decision today at 2:00 P.M. ET, followed by a press conference with Chair Jerome Powell.

Kapfidze believes the Fed will reiterate its 2% inflation target coming off this new inflation data, but warning that "the prices don't go back down. And I think that is what keeps the consumer confidence relatively subdued."

Tchir explains why political pressures may play a role in the Fed pushing through interest rate cuts this summer: "You really would not want to make that first cut in September if you can get away with it, right? We're going to be in the middle of the election. You know both parties are going to react to any sort of cut. Why not try and get that done in July 31?"

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

This post was written by Luke Carberry Mogan.

Video Transcript

Is there a new normal when we talk about some of those further projections and whether or not 2% should actually be the target and you also talk about that long term terminal rate as well.

Is there this new normal?

And what does that then do you think mean here for the fed?

Yeah, I mean, I think the target is still 2%.

Uh even if you wanted to move off of 2% which I don't think anybody really does want to do that.

You can't do it when you're above 2% right?

You can't move the target when you haven't hit the target.

Uh because that brings into question, definitely your old target is done, but even your new target now becomes questionable uh if you're moving targets before you hit it.

So I don't think the target moves, uh I think the Fed will still reiterate that they're focusing on getting inflation back to 2%.

I mean, does any of the this change how consumers actually feel right now?

I mean, it seems like this as it continues to be a conversation among households and individuals and even even in the workplace even if they don't work at a place like Yahoo Finance where we talk about it in the newsroom every day.

Inflation is a constant kind of social construct conversation right now.

Yeah.

So I think, you know, for, you know, economists, folks like us, we're like, oh yeah, the rate of inflation is coming down.

Ok. We're heading towards the 2% target, you know.

Great.

All right, this is kind of what the fed tells us they're gonna do.

This is what we expect.

Uh This reduces volatility in the economy overall.

But the problem, of course, with inflation going down is that the prices don't go back where they were, right?

Which I think is the mindset that consumers have, right?

They're saying I used to pay X dollars for this certain item.

Now I'm paying, you know, you know, X plus, you know, 0.3 or 0.4 whatever it is, right?

Um So the prices don't go back down and I think that is what keeps the consumer confidence relatively subdued, right?

But when you look at what consumers are telling you what they say they feel versus what they're doing, right?

There's a huge divergence there, right?

So people are actually out there to Schumer is still pretty strong they spending, right?

We're expecting this quarter probably GDP is gonna be a little bit stronger than last quarter.

Um So people say they feel one way and they go out and they do something else.

It certainly has been the case here over the last couple of minutes.

I would just say the flip side of some of that is as you're seeing, right?

Um, goods it's starting to come down.

Right.

New autos, right.

All you have to do is look at your, probably your own inbox.

Right.

And we went from them begging for your used cars to, now there's sales, there's rebates all of that.

So I think there is some pressure on the consumer and that's being reflected in lower prices or lower inflation for a lot of goods as that spending is coming back.

And I especially think at the lower cohort, you know, the weaker part of the economy that spending is starting to slow fairly dramatically.

So Peter, when you take a look at this print, obviously, the fed is looking at this print as good news here.

How many more of these types of prints do you think the fed needs to see in order to be or in order to have that confidence for the first?

I think this is good enough for them to really start pushing still for a July cut even, right?

It's because they do want to get ahead right.

There's these long lag times they want that.

And I think the reality is too, I, you know, just from a, you know, professional standpoint, you really would not want to make that first cut in September.

If you can get away with it, right.

We're gonna be in the middle of the election.

You know, both parties are gonna react to any sort of cut.

Why not try and get that done in July 31st.

Everyone's kind of sleepy.

We're not in the middle of the election.

So I think this puts us on pace where we're gonna get a messaging that July 31st is still in play for a potential cut.

Ok?

I was about to ask what the benefit of July versus September is.

Thanks for laying that out.

I mean, as we're also thinking about though, the investors that are trying to figure out their strategy here, take us into their strategist hat.

What is the first trade?

What is the portfolio positioning that you think about after a print like this?

You know, I think you can be very comfortable in fixed income.

I think we might see some higher yields.

I think we went a little bit low now and I think we'll drift a bit higher but you know that five year and then you like, I really like credit.

So in your fixed income portfolio, I really like Muni, I like closed end funds in the Muni side where you get some extra juice.

I think that's gonna be fine.

And I think from a risk taking standpoint, you can start taking more risk and I think this might start setting the stage for, you know, kind of this.

Um you know, rebalancing where the mag seven has been such a big driver and everything else has been under performing.

Right.

I think we're at all time.

Highs on the S and P 500 but very few stocks are anywhere close to their high all time.

So I wanna start looking at those stocks.

Right.

The laggards and see if they can improve as we go into this rate cut cycle.