As Federal Reserve Chair Jerome Powell grapples with uncertainties surrounding rate cuts and inflation during his testimony on Capitol Hill, Dennis Lockhart, the former President of the Federal Reserve Bank of Atlanta, joins Yahoo Finance Live to share his outlook on potential future rate cuts.

Lockhart acknowledges the December dot plots, which indicated a range of two to four rate cuts. However, he notes that "the committee doesn't really know quite yet," highlighting the uncertainty surrounding the Fed's future actions. When the Fed does decide to implement rate cuts, Lockhart expects their approach to be "cautious," emphasizing that everything remains data-dependent.

According to Lockhart, the Federal Reserve must consider "the totality of the inflation data" when contemplating rate cuts. Despite the current strength of the data, he cautions that nothing is truly "predictable."

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

Video Transcript

RACHELLE AKUFFO: Fed Chair Jerome Powell reiterating that rate cuts are likely to happen this year during his second day of testimony on Capitol Hill. With that in mind, though, when it comes to the number of cuts, Minneapolis Fed President Neel Kashkari says with recent data, he sees two rate cuts at most this year. Well, joining me now is Dennis Lockhart, former president of the Federal Reserve Bank of Atlanta. Thank you for joining me in this morning. So first, I want to--

DENNIS LOCKHART: Thank you for having me on.

RACHELLE AKUFFO: Of course. I want to start with what we've heard, this careful balancing act that Fed Chair Powell is doing. Clearly waiting for more consistent data on inflation, but at least signaling that rate cuts are ahead. Looking though perhaps two rate cuts or fewer according to Kashkari, where do you see things landing? Is that enough, given the strength of the economy?

DENNIS LOCKHART: Well, the best indication we have is the so-called dot plots from the December summary of economic projections. And those dots showed I think four people at two, five or six at three, and four at four cuts. So it was a range from two to four. And obviously, Neel Kashkari is in the two camp and has remained in that two camp perhaps.

But I don't think the committee really knows quite yet. When they begin the process, the cadence will be a cautious one. So it could be as few as two cuts. But if the data are accommodating, it could be three or even four.

RACHELLE AKUFFO: So Dennis, what is it about the consistency of the inflation data that we've seen so far that's giving the Fed pause?

DENNIS LOCKHART: Well, the January numbers showed, let's just say, a deviation from the expected continued March downward in the inflation rate. Looks like it might have been a pause or a stall, but it's one month. And they're not going to overreact to one month.

So they really have to step back and look at the totality of the inflation data and decide what is the underlying trend and get very confident that underlying trend is headed toward 2%. And nothing in data is just predictable or absolutely linear. And so they have to proceed cautiously to make sure they're reading the numbers correctly.