Invesco Global Market Strategist Brian Levitt joins Yahoo Finance Live to analyze the Federal Reserve's decision to hold rates steady, with Powell's commentary implying six rate cuts are unlikely in 2024.

Levitt says he is "thrilled" the tightening cycle has ended. However, he believes markets had prematurely "priced in too quickly" the six cuts speculated for 2024. With Powell signaling investors "shouldn't expect" six reductions, Levitt notes markets are now "recalibrating." While the tightening cycle has ended, Levitt says the Fed will slowly reduce rates but remain "data-dependent." He forecasts only two to three rate cuts versus the hoped-for six.

Levitt explains investors gravitated to six cuts "because that would have normalized the yield curve." Although, he warns the "big challenge" is a normalized curve implies a "weaker dollar" and weaker small/mid caps.

For now, he notes small caps face "near-term pressure" from the recalibration, but historically they thrive "as the Fed eases," though currently mega-caps have the edge.

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

Video Transcript

SEANA SMITH: Invesco Global Market Strategist-- Brian, it's great to have you here. So, I'm curious just to get your reaction to what we heard from Powell, not only at the press conference last Wednesday, but also what we heard in "60 Minutes" last night, and what that means in terms of your expectation for a rate cut.

BRIAN LEVITT: Well, first and foremost, I'm thrilled that we're done with the tightening cycle, right? That is critical. I think the market's priced in too quickly the six interest rate cuts. And that rally, that cyclical, all everything rally in November and December-- I wish it would have lasted a little longer. So now, we're recalibrating.

Basically, what we heard is that don't expect the six. We are done tightening. We'll slowly bring down rates, but we'll be data dependent as a result of it. To me, it's not a huge issue for markets, but just a shift in leadership, so to speak.

BRAD SMITH: What's the real number of rate cuts that you believe that we're going to get this year?

BRIAN LEVITT: Probably, looking more around two or three rather than six. I think the market went to six because that would have normalized the yield curve. And at some point, if you don't need 5 and 1/4 funds rate, if we're not going to be a 5% nominal growth country, which we're not-- so at some point, you normalize it.