Markets (^DJI, ^IXIC, ^GSPC) and investors are now turning their backs on the likelihood of the Federal Reserve cutting interest rates in June. Select Wall Street experts are gripped by uncertainty and even believe a rate hike cut be next.

State Street Global Advisors Chief Economist Simona Mocuta details the broader consequences of the Fed holding rates too high for too long.

"We heard from the Fed earlier that disinflation is reason enough for rate cuts and you don't need to be at your target in order to begin the cutting cycle because we know it's a long process for these rate cuts to work through the economy," Mocuta tells Yahoo Finance. "The idea of the long lags, the idea of controlling the narrative, I think it's a mistake for the Fed to tie itself so tightly to any monthly data point... That is how the market may operate and even that is not always wise. But that's not how monetary policy should operate and I think the focus should be much more on the longer-term trend which remains one of disinflation."

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

This post was written by Luke Carberry Mogan.

Video Transcript

SEANA SMITH: All right, well, more and more investors though are no longer expecting the Fed to cut rates in June. This comes after a string of stronger than expected econ data prints. Now, traders are now pricing in a 79% chance that the Fed is going to hold rates steady in June, that's according to the latest data from the CME FedWatch tool.

Our next guest though, saying that a June cut is actually still on the table. We want to bring in Simona Mocuta. She's a State Street Global Advisors chief economist.

Simona, it's great to see you again. So talk to us just about the market doesn't think a June cut is likely, but you do. Why?

SIMONA MOCUTA: I think it's possible. I have to say it's very hard being a dove nowadays, but the reality of the situation is a lot can happen in the next two months, right? We sit here in the middle of April. The June meeting is in the middle of June. We have two more employment, two more inflation reports from here till then.

So I think what I'm trying to say here is let's not entirely take June out of the range of possibilities. I think there are a lot of reasons too that still argue in favor of an early start to the cutting cycle despite the string of inflation data that we've seen. Some of these really are the same arguments we've made for a very long time. Fed funds relative to inflation. And if you-- despite the numbers we've had, core PCE inflation is still inching lower and approaching 2.6%, 2.5% by the time the Fed will meet in June in our expectation.

There is a long lag with which monetary policy operates. There are some timing issues around the US election so controlling the narrative, controlling the process and deciding when to go, and perhaps creating a little space around what's coming down the line may be the better option for the Fed after all. Obviously, everything will hinge on how the data plays out over the next two months, but it's very hard and very rare to have half a year of upside inflation surprises. I don't think we are in the same place today from any angle, supply chain-demand imbalances-- supply-demand imbalances as we were in the early recovery period after COVID. So it's a different kind of moment in time.

MADISON MILLS: Simona, this is so fun to get to talk to someone who has a different view when we have the UBS saying we could even have a hike this year. So I very much appreciate you coming on and having this different view. I'm curious about something you just said about the election and how that could impact timing. Can you extrapolate that out for me and what your thinking is on that?

SIMONA MOCUTA: So it's never-- in an ideal situation, I think the Fed and any central bank would try to create a little bit of space around big political events just so that no wrong conclusions are being drawn or equal signs being put between an action that they may take based on macro data and the interpretation of that action in the context of the political event, right? So I think that's partly actually why the market has faded so many of the cuts because they probably-- there is an assumption there that the Fed cannot cut in September or cannot cut right after the election. I think the Fed can and if the data compels them to do will do so even if they don't make aggressive moves or significant moves until the fall. But it's something that in ideal situation, you probably want to avoid.

SEANA SMITH: Simona what would the fallout be if the Fed does not cut by July? We talked about the fact that you sent over in your notes and you mentioned briefly there just that could be a potential risk, a potential mistake. Why and what does that fallout look like?

SIMONA MOCUTA: I think it just-- I think it inflicts unnecessary pain. I think you-- I've heard you talk in an earlier segment about the consumer dynamics. I think it would be a mistake to equate the resilience of the economy so far with the idea that borrowing costs are not high. They are high and for an increasing number of consumers, especially those that do need credit, it's getting harder and harder and quite expensive to access it.

So why do that if you don't need to? At the end of the day, we heard from the Fed earlier that this inflation is reason enough for rate cuts. And you don't need to be at your target in order to begin the cutting cycle because we know it's a long process for these rate cuts to work through the economy.

So the idea of the long legs, the idea of controlling the narrative, I think it's a mistake for the Fed to tie its hands so tightly to any monthly data point, right, and become tied by a 0.358 or a 0.359. That is how the market may operate and even that is not always wise. But that's not how monetary policy should operate. And I think the focus should be much more on the longer term trend which remains one of disinflation.