Ahead of the highly anticipated February Consumer Price Index (CPI) report set to release on Tuesday, Citi Economist Veronica Clark joins Yahoo Finance Live to share her outlook.

Clark notes that she will closely monitor the CPI report's month-over-month change. While she anticipates a decrease in the yearly rate, she expects to see "some residual strength" in the monthly data point. However, following a strong January, she warns that there may be some stickiness in the February report regarding services inflation, which she notes "is not a great place for the Fed." Still, Clark forecasts that the first rate cut will occur in June, "and every meeting after June."

Despite recent jobs data pointing to a "reaccelerating economy," Clark highlights signs that the labor market is beginning to weaken, with hiring slowdowns and an uptick in unemployment.

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Editor's note: This article was written by Angel Smith

Video Transcript

BRAD SMITH: Well, investors are eagerly awaiting the latest read on inflation and what it will mean for the timing of rate cuts. CPI for the month of February is out Tuesday. The headline number year-over-year is expected to remain unchanged from January. But core CPI excluding volatile, food, and energy prices is expected to soften a bit to 3.7%, a slight decline from January's 3.9% reading.

Here with more, we've got Citi economist, Veronica Clark. Veronica, great to see you here this morning. All right. So the expectations are laid out. What though will this mean for the pathway for the Fed here and what data dependency and the trend that they're looking for in that data is actually signaling?

VERONICA CLARK: Yeah. Yeah. The most important thing that we're watching at 8:30 tomorrow morning is that the month-on-month change in core CPI. So the year-on-year rate should be falling. But we're actually expecting to see still some residual strength in that monthly number. We're expecting a 0.33% month-on-month increase in core CPI. Now, that's following a very strong January. I don't think we'll see quite a repeat of what we saw in January.

But there's still some stickiness to services inflation in particular. And that's not a great place for the Fed, but we kind of have seen Fed officials talking about maybe this is just some bumpiness on the path to 2% inflation. And they do still seem to want to be cutting rates as we're getting to the middle of the year. So I don't know if this February number will quite clearly change that quite enough. They still seem like they're going to be cutting.

SEANA SMITH: Veronica, what's your base case for rate cuts now?

VERONICA CLARK: Yeah. We're expecting that we're going to see the first cut in June. I think that's relatively consensus at this point. We're penciling in 125 basis points total in cuts for this year, so that is cutting in June and then every meeting after June. And we do have this stickiness to inflation still, but I think most importantly for our forecast, we are expecting that you could see some softer activity data as we're getting to the middle of the year. And that is probably what gets the Fed to be cutting every meeting.

BRAD SMITH: So let's put this inflation data up against what we've been seeing on the employment situation front because last week, we got a reading that at least on the headline of the non-farm payrolls was better than expected. But then we got those key revisions. So what does that tell us really about where the employment situation, where the labor market sits right now from your perspective?

VERONICA CLARK: Yeah. Yeah. We had a lot of January data, you know, January employment data, January CPI that kind of looked like this reaccelerating economy, this too hot economy. And then this February employment numbers, they were a bit complicated. We did have a stronger than expected increase in jobs in February. But we did see those revisions lower, the unemployment rate still rising.

So there are these signs that the labor market is starting to weaken and continuing to weaken. And we've definitely seen hiring slow down. We've seen that in the hiring rate in the JOLTS survey. We've seen that in weekly continuing claims. It is taking people longer to find work if you do lose your job. We're not seeing the big outright layoffs yet, which is, of course, still positive. But that would really be the last step in a weakening labor market, and all those early steps are still there.