Investors are turning their attention to a slew of economic data in the weeks ahead after the Federal Reserve initiated its first interest rate cut in four years. Wolfe Research chief economist Stephanie Roth joins Morning Brief to discuss the state of the economy and the Fed's path forward as it eyes a soft landing.

Roth calls the Fed's 50-basis-point interest rate cut "preemptive to some extent," yet she notes that the Fed has a lot of room for cuts. "They have a lot of room to go big at the beginning. And also, Powell didn't fully acknowledge this, he kind of danced around the question, but they asked whether we were just catching up from the July cut that probably they should have done. And he didn't exactly say this was the case, but I think you could read from the body language that wasn't what he was implying, that they should have cut in July. They didn't. Now they did the 50-basis-point cut," she tells Yahoo Finance.

She believes that the Fed's next cuts will depend on the labor market and the state of inflation. Roth notes that the three- and six-month change in core PCE (Personal Consumption Expenditures) is below 2%. Wage inflation is still high while employment growth decelerates. "At this point, the risk of having a labor market that weakens more materially is more significant for the economy than having inflation run a bit high," she argues.

"We've been in an environment where inflation was a little bit elevated, and we kind of were able to pull through that. But if we start to see the labor market really, really melt down, that could be a that could be a recession risk. And the Fed wants to avoid that."

Thus, she notes the upcoming payrolls print will be especially important as the Fed weighs the amount of its next cut. "Our base case is that we're going to see payrolls come in a little bit better than the market is fearing," she explains, noting that the print would come in between 120,000 and 130,000. If the data comes in lower than that threshold, she believes that the Fed could initiate another 50 basis-point cut. Similarly, if the unemployment rate were to rise to 4.3% the Fed may opt for a larger cut.

While the Fed is eyeing a terminal rate of 2.8% by the end of its cutting cycle, Roth says, "our base case is that they'll cut at least to 3%, perhaps even by the end of 2025." She concludes, "So now that they're potentially accelerating this cutting cycle, we could easily see 3% in the not-so-distant future. And then maybe just a couple of cuts after that."

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This post was written by Melanie Riehl