Charles Schwab's Top Stock Picker: Economy Won't Stop Fed from Raising Rates

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• The CIO of Charles Schwab stated that the Federal Reserve will only lower rates if it is concerned about a recession.

• Markets will be able to assess the state of the US economy using Friday's jobs report.

• Liz Ann Sonders told CNBC that the Fed will be able to "continue on their aggressive course" as a result of positive jobs data.

A natural decline in inflation is unlikely to be sufficient to cause the Federal Reserve to change course, according to one of Charles Schwab's top analysts. The Federal Reserve will only begin lowering interest rates when it is concerned about US economic problems.

Markets need to begin focusing on economic data other than the monthly Consumer Price Index reports, according to the brokerage's chief investment officer, Liz Ann Sonders.

She told CNBC on Tuesday that a more severe downturn in the economy, rather than just a peak in inflation, would give the Fed permission to pause or slow down the aggressive pace of rate hikes.

This year, the Fed increased interest rates in an effort to rein in inflation, which is currently around four-decade highs.

The central bank has nonetheless hinted that it might change its stance if there are signs that the US economy is slowing. Rising rates have a negative impact on housing activity and consumer demand, increasing the likelihood of an economic slowdown.

With the release of August jobs data on Friday, markets will have another chance to assess the state of the economy. A strong report, according to Sonders, would demonstrate economic strength and would motivate the Fed to keep hiking interest rates.

She added: "If you have solid labor market data continuing, that in turn gives the Fed a green light to continue on their aggressive path."

When Fed head Jerome Powell spoke last Friday in Jackson Hole, Wyoming, anxieties about rising interest rates shot back to the top of investors' priority lists.

He gave a hint that the Fed intended to maintain interest rates higher until inflation was completely under control. Since Powell's speech, the S&P 500 has fallen 5.1%, causing stock markets to tremble.

According to Sonders, Powell's remarks demonstrate that the Fed's rate-hiking campaign won't be slowed down by any foreseeable decreases in inflation, and that markets weren't entitled to be shocked by the Fed's aggressive posture.

The move to rate cuts was part of the macro narrative and Fed-related narrative that had emerged around the time the market had reached its bottom, according to her. "I don't think that story made much sense," she said.

"I'm not surprised to see some of this digestion now – I think it could have happened before Jackson Hole if people were paying attention," Sonders added.

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