The University of Michigan's consumer sentiment survey showed sentiment turning positive and jumping to its highest level since 2021. Consumers appear increasingly hopeful on wages and declining inflation.

S&P Global Ratings Global Chief Economist Paul Gruenwald joins Yahoo Finance Live to weigh in on labor data that will play a key role in the Federal Reserve's interest rate cut decisions.

“With a sharper downturn, then the last mile is going to be less of an issue and you’ll see central banks cut more aggressively," Gruenwald says, considering economic risks.

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

Editor's note: This article was written by Eyek Ntekim

Video Transcript

AKIKO FUJITA: Paul, you mentioned housing as one factor you're watching. Obviously, so much of this is also about the inventory story. It's not necessarily about the rates coming down and consumers just jumping in and seeing sort of a friendlier market, if you will. I mean, that sort of begs the question, how much of what we're seeing in inflation, that last mile, if you will, is in the Fed's control right now?

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PAUL GREUNWALD: Yeah. Well, the last mile is an interesting issue, right? Because to us, you have to talk about the last mile in the context of what's happening in the real economy and what's happening to demand. So again, if the labor market remains robust and consumer spending remains robust, that last mile is going to be difficult to bring inflation down to the medium term target of 2.

If we get a sharp downturn in employment and a sharp downturn in demand and consumer spending, then the last mile is going to be less difficult. So again, our baseline is this soft landing with continued strength in consumer spending and labor markets. But if we go into the risk scenario, with a sharper downturn, then the last mile is going to be less of an issue, and you'll see central banks cut more aggressively.