Americans are still battling with the higher pries caused by inflation. The Federal Reserve's job is to help curb that inflation, but these levels haven't been seen in quite some time. Truist Chief Market Strategist Keith Lerner joins Yahoo Finance to discuss how the central bank still has work to do to accomplish its mission

Lerner explains that the Fed has been forced to shift their strategy, saying "this is the first time they've [the Federal Reserve] had to deal with inflation for over 20 years, they're going to be much more gradual in shift in their position, we saw that reflected in the statement from yesterday."

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

Video Transcript

RACHELLE AKUFFO: Well, the federal reserve decided to hold rates steady at yesterday's meeting, making it clear the central bank is almost done raising rates. But with inflation still sticky, next year could see fewer cuts than previously indicated. Our next guest says the Fed is far from mission accomplished, and the market consensus is expecting too many rate cuts.

Joining us now is Keith Lerner, Truist Chief Market Strategist. Good to have you back on the show here, Keith. So in terms of what we thought was going to happen, in terms of pricing and what some of the markets clearly thought were going to be, some cuts we were going to see this year, now those projections being pushed out to 2024, how is the sentiment here? How accurate are the markets getting this story right now?

KEITH LERNER: Yeah. Well, great to be with you, Rachelle. Wish we had a better, you know, day as far as markets because we are all under pressure today. And I think the market has taken this as a negative. And I think our view for some time for this year is that this inflation battle over the last year has caused a shift in the reaction function from the Fed.

They have scar tissue, meaning this is the first time they've had to deal with inflation for over 20 years, and that they're going to be much more gradual in shifting their position. And we saw that reflected in the statement yesterday. And I think really the key today, you know, when we have these Fed meetings, what I really look at is, how is the market reacting?

And I will say, really, what's pressuring markets more than anything today, to me, is the risk-free rate. The 10-year treasury just broke out of the range that it's been in for several months and above the highs from last October. And I think that's why you're seeing pressure across the capital markets today.

RACHELLE AKUFFO: So then as you look at what's happening with yields, what is that signaling about some of the sectors that perhaps could be leading the way and how people are trying to really play this period right now?

KEITH LERNER: Yeah. I think one thing that was a challenge right now is there's no sector leadership. Energy had been the sector leadership, and I still think that looks relatively attractive. But that's even given it back. So at this point, we're waiting for like the real sector leadership to stand up. But I will say the way we've been thinking about this is you want to stay away or have less exposure to more of the interest rate-sensitive areas of the market.

So what do I mean by that? Well, one, think about small caps. They're really cheap. However, they have about three times the floating rate debt relative to large caps. And what are we seeing today? Small caps breaking down. Real estate, as we have more of that refinancing happening, they're going to be impacted by higher for longer as well. So you want to kind of stay away from some of those areas.

And then as I mentioned, I mean, we're still waiting for the new leadership to emerge. But in the interim, we still like areas like communication services, we still like industrials. But it's a really mixed overall market right now. And I think we're in the seasonal weak period where I think we have more of these choppy waters to go.