Federal Reserve Governor Michelle Bowman signaled her support for the central bank to cut interest rates as inflation eases in a statement on Monday, while also warning that risks persist. This echoes a similar sentiment from Fed Chair Jerome Powell who stated back in December that rates most likely would be cut but remains cautious. Yet, the market seems to already be pricing in multiple rate cuts.

SEI Chief Investment Officer Jim Smigiel joins Yahoo Finance to discuss why the stock and bond markets seem to have priced in so many interest rate cuts from the Fed.

"It's a repeat of 2023... If we wind the clock back 12 months, we're in the same position: The market had Fed cuts priced in," Smigiel says. "I think myself and a lot of other talking heads were saying the same thing, we don't see cuts in 2023. We didn't get cuts in 2023. We actually saw additional hikes, and the market didn't care."

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

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

Video Transcript

JULIE HYMAN: You know, Jim, just using sort of anecdotal evidence, you are among many, many people who we've spoken to in the past few weeks who have been saying this same thing. Why is the market still pricing in as many cuts as it is when seemingly everybody we talk to doesn't think they're gonna cut that many times?

JIM SMIGIEL: I think that's a great point, Julie. And to be honest, it's the same thing as-- it's a repeat of 2023. If we recall, if we wind the clock back 12 months, we were in the same position. The market had Fed cuts priced in.

I think myself and a lot of other talking heads out there were saying the same things if we don't see cuts in 2023. We didn't get cuts in '23. We actually saw additional hikes. And the market didn't care. The market rallied 20% based on a lot of other factors, such as the AI fever that you were talking about earlier.

So, you know, I think it's a great question, which is, what does the bond market see? And there's a few different ways to look at it. The bond market, quite frankly, might be a bit more negative than the equity markets, not necessarily expecting this soft landing.

The bond market might be looking at it from a stimulus standpoint to expect a little bit of a downdraft in economic activity that really equity investors don't seem to be pricing in at this point in time. There is a lag to monetary policy. There's a broader lag to monetary policy this cycle just given where we started from with corporate balance sheets in great shape, with debt termed out.