As economic data appears to diminish the prospect of a June Federal Reserve rate cut, Interactive Brokers Senior Economist José Torres joins Yahoo Finance Live to share his outlook on the central bank's rate cut timeline.

Torres notes that while goods and commodities contributed to disinflationary trends in 2023, they are "starting to reverse higher" this year. He points out that increasing commodity prices and rising costs for goods transportation, coupled with continued robust economic data, are forcing investors to "incrementally delay the Fed's first rate cuts," fueling uncertainty in what Torres describes as "a risky monetary policy bridge."

Despite this uncertainty, Torres highlights that "the economy is doing just fine," with "stable prices" and "maximum employment." The real challenge, according to Torres, lies in the stickiness of inflation. He suggests that "there's really no reason for the Fed to cut here" unless the job market weakens or inflation starts to decline.

Torres explains that under this elevated rate environment, consumer spending is being fueled by the ability to find jobs in a robust job market. However, he notes that consumers lack the willingness to save for significant purchases due to high interest rates.

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 Angel Smith

Video Transcript

JULIE HYMAN: New data on wholesale inflation showed prices rising more than expected last month. A separate report on retail sales rose less than forecast. Together, they make the path to potential rate cuts more complicated for the Fed.

And here to help us break down the data and its implications, we're bringing in Interactive Brokers Senior Economist Jose Torres. Jose, it's good to see you.

So I know there's always the caution against just looking at a handful of data points and trying to extrapolate what the Fed is going to do. And certainly, the Fed is looking at the three, the six months trends in data. So how should we read what we've been getting for January and February?

JOSE TORRES: Thanks for having me, Julie. Well, January and February what we've been getting is goods and commodities reversing their progress from last year. Goods and commodities deflation paved much of the disinflationary trend last year.

But now, they're starting to reverse higher. You have oil at around $81. Copper made one year highs yesterday. So did lumber.

We're seeing commodity prices increase. We're seeing goods transportation costs increase. And services really never really cooperated. That remains hot as well.

So what we're seeing is in the beginning of the year, investors expected seven rate cuts. Now, they're expecting 3. And as these hot data continue to come in, they're incrementally delaying the Fed's first rate cut and extending our journey across the risky monetary policy bridge.

JOSH LIPTON: Do you think, Jose-- I mean, it is interesting to hear some smart strategists out there who are saying maybe no cuts, Jose. I'm thinking of Dr. Ed Yardeni who saying--

Listen, still expects two cuts. But he did see an increasing chance. He's telling clients of no cuts. Just given what he's seeing with these kind of financial conditions easing the way they are.

JOSE TORRES: Absolutely. The economy is doing just fine. The Fed has a dual mandate of maximum employment and stable prices. And the employment side of the mandate is not under threat at all.

Right now, it's inflation that's sticking there right around 3%. CPI bottomed last June at 3%. We haven't seen a reading below that.

Since the economy is doing fine, financial stability concerns have been placed at bay. The employment market is doing great. We have strong job openings.

We have wage gains. We have good job growth. So there's really unless inflation starts to reduce more significantly or the job market begins to weaken, there's really no reason for the Fed to cut here.

JULIE HYMAN: And what is your take on the effect on consumer spending? Because, obviously, we've seen consumer spending hold up pretty well. Retail sales today being a little lackluster notwithstanding.

But we also have heard just a drumbeat of negative sentiment related to inflation, even if it's moderating. Still, obviously, prices being considerably higher than they were a couple of years ago. Does that start to pinch consumer spending at some point?

JOSE TORRES: You know, Julie, I don't think so. Because what the consumer is doing is their propensity to save has been reduced. There is not as much of an incentive to save for big ticket items because of rates being elevated.

Also, there's not an incentive to save for down payments because home prices are really elevated alongside rates. So what consumers are doing instead of saving, they're spending almost all of their money. And that's really fueling consumer spending, particularly in the services segments.

As far as sentiment being negative, there is an offsetting factor there. And the fact is consumers have plentiful job opportunities out there. They can go out.

They can bargain for better wages. They can ask for increases in the ADP survey. We see that the gap between job stayers and job changers is still very wide.

So those dynamics tell me that the consumer albeit, they are pressured by reduced credit availability higher prices and higher rates. They're still doing all right. And also rents are softening.

Not as fast as I think the consensus thinks. But rents are softening. So that's good news as well for the consumer.

JOSH LIPTON: So, Jose, given that view on the consumer then are you in the soft landing camp. So inflation you think returns to 2% without a downturn.

JOSE TORRES: Josh, sometimes I wonder if the Fed is going to accept inflation at around 2.7%, 2.8%. And before we saw inflation up in the 8's and the 9's, so 2.8 may not seem like much.

But remember, it's still 40% above target. And I think that's really the difference, Josh, between whether we get a soft landing or a hard landing. If the Fed really tries to go to the end with inflation, it doesn't look like they are. So right now, I'm in the soft landing camp.

JULIE HYMAN: Jose, good to see you. Thanks so much.

JOSE TORRES: Thank you.