Amid ongoing uncertainty surrounding Federal Reserve rate cut expectations, The Wall Street Journal’s Chief Economics Correspondent Nick Timiraos joined Yahoo Finance to share his outlook on the central bank’s monetary policy.

Timiraos outlines three potential scenarios the Fed may face. In the first scenario, he describes strong growth with inflation “making steady progress'” toward the Fed’s target. The second scenario involves strong growth but “inflation [remaining] sticky” and still higher than the target. Timiraos warns that the third and worst-case scenario is “growth contraction, with high inflation.”

With the federal funds rate above the inflation rate and a slowdown in wage growth, Timiraos says, “It’s gonna require [the Fed] to soften the labor market more.” However, he acknowledges that the labor market is already showing signs of cooling.

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