Federal Reserve Chair Jerome Powell spoke on Wednesday at Stanford University, claiming that inflation is still on a "bumpy path" to the Fed's inflation target goal of 2%. He added that he believes that the Fed will mostly likely cut interest rates sometime this year. In response, US equities (^GSPC, ^DJI, ^IXIC) have begun to fall in afternoon trading.

BNP Paribas Senior US Economist Yelena Shulyatyeva joins Market Domination to discuss Powell's speech, the likelihood of rate cuts, and the performance of the overall market.

When asked if she agrees with Powell's statements, Shulyatyeva weighs in on prevailing inflation themes like commodity prices: "Sure. Commodities is a risk factor here. I would say so that could percolate into core inflation, so whether it is core goods or even core services which include like hotel prices, travel, airfares, and such. But it will probably take a little bit of time and... these things are very easily identifiable. So commodity prices can go up and down, and the Fed is very well aware of that. That's why they track core inflation after all. So I think we could see a little bit of an impact on core prices, but they are easily identifiable."

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

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JULIE HYMAN: Treasury yields stabilizing from earlier losses after Fed Chair Powell said he still expects rate cuts this year, though noting more progress is needed on inflation because before those moves can begin. Joining us now is Yelena Shulyatyeva, BNP Paribas senior US economist. Yelena, it's always great to see you. Thanks so much for being here. So I think the markets are going--

YELENA SHULYATYEVA: That's my pleasure.

JULIE HYMAN: Thanks. The markets are kind of trying to figure out whether to take Powell at his word at this point, right? We have seen the market pricing in a lower chance than previously that the Fed would begin in June. You've got Raphael Bostic saying, maybe it'll just be one cut this year and not until the fourth quarter. How do you put all of that together?

YELENA SHULYATYEVA: So Powell just basically lifted up to the data to decide. And we've been getting some strong data recently. So think about not just the ISM manufacturing index a couple of days ago. But last Friday, we received quite strong data on consumer spending. So everybody was focused on inflation readings.

But the report-- the PC report we received last Friday also showed a significant rebound in consumer spending for services in the month of February. So that report actually confirmed that spending in January was weighed on by weather-related factors and the strength-- consumer strength is still present.

So putting it all together, consumer spending, ISM manufacturing index going above 50 breakeven level. And even today, ISM services data was relatively strong. The decline was driven by supply deliveries, which is actually a positive thing suggesting that supply chains are healing. So all of this positive data are telling us that the economy is doing just fine despite the fact that rates are so relatively high. And that is continuing.

Something very interesting, Powell reiterated at least five times today was supply side factors-- supply side factors. So he's talking about supply side factors that are pushing economic growth to much higher than we think, where the potential growth is. But that does not preclude inflation from subsiding. And he reiterated that again and again today in today's speech. So our projection is for three cuts this year in line with the median dot at the latest FOMC meeting starting in June.

JOSH LIPTON: So does that mean, Yelena, you still-- you obviously, do you agree with Powell then when he said today talking about inflation. He sees this kind of bumpy road back down to his target of 2%, even with, Yelena, what we're seeing in commodities right now?

YELENA SHULYATYEVA: Sure. Commodities is a risk factor here, I would say. So that could percolate into core inflation. So whether it is core goods or even core services, which include, like, hotel prices, travel, airfares, and such. It will probably take a little bit of time. And these are not-- these things are very easily identifiable.

So commodities-- commodity prices can go up and down. And the Fed is very well aware of that. That's why they track core inflation after all. So I think we could see a little bit of an impact on core prices, but they are very easily identifiable. The Fed is particularly interested in core inflation and super core, so things that exclude volatile components and wage inflation is what really matters.

And we're going to get another report this Friday. And we are expecting deceleration in the pace of wage gains. So, like, average hourly earnings will likely decline. Growth in year over year, pace will decline in the upcoming report.