Madison Mills and Seana Smith sit down with Blake Gwinn, RBC Capital Markets head of US rates strategy, and break down what he expects from the Federal Reserve after the first rate cut on Morning Brief.

Gwinn tells Yahoo Finance, “There are some upside risks around inflation, and if you look at our forecast for where the Fed is going to cut to our terminal rate, it's much higher than markets are expecting. We're at 4% to 4.25%. Markets are pricing much lower than that. The Fed's dots are much lower than that.”

The strategist explains part of the thinking behind RBC Capital Markets’ expectations is because “we think the economy is probably you know, in a lot better footing here. Consumer balance sheets, corporate balance sheets are doing very well. We think when you look across the spectrum of data, it's really not as bad as a lot of the negativity over the last few months has suggested.”

He adds “Then you layer on to that these inflation pressures you're talking about where, you know, we could see some pent-up activity that's kind of unlocked after the election. I think there's some people kind of waiting for clarity on the election, waiting for the cutting cycle to have started. So I think there's going to be a little pent-up activity into the end of the year, beginning of next year.”

Gwinn says, “We've seen this residual seasonality and inflation data. So it's good right now. But we've seen before we've gotten a head fake. It was very good last fall as well. And then we got that very hot inflation data in Q1. So I think that's kind of where we're coming at with that higher terminal call is that we get into Q1 of next year… We think the Fed could find themselves in a place early next year where a pause starts to make sense."

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This post was written by Naomi Buchanan.