Key Takeaways
Societe Generale says the Fed has “over-tightened” policy and must act more forcefully.
Both SocGen and Standard Chartered expect a 50 basis point cut at this week’s FOMC meeting.
Market consensus remains for a smaller 25bps cut, with CME FedWatch assigning just 4% odds to a half-point move.
Analysts at Societe Generale believe the Federal Reserve’s “moderately restrictive” stance has been maintained for too long, pushing policy into a state of over-tightening. With inflation showing stickiness but the employment outlook weakening, they argue the Fed’s dual mandate has shifted decisively toward supporting jobs.
As a result, SocGen now forecasts a 50 basis point interest rate cut, saying a more forceful adjustment is needed to rebalance risks.
They aren’t alone. Standard Chartered Bank is the only other major institution publicly predicting a 50bps move at this week’s FOMC meeting.
Market Still Expects 25bps Cut
Despite these contrarian calls, traders remain aligned with a smaller move. According to CME FedWatch Tool, futures markets currently price a 96% chance of a 25bps cut, with just 4% odds assigned to a 50bps adjustment.
The divergence underscores the uncertainty facing policymakers: inflation remains above target, but jobless claims have surged to four-year highs, signaling cracks in the labor market.
Why This Matters for Markets
A larger-than-expected cut could:
Boost risk assets like stocks, Bitcoin, and gold, as easier liquidity flows back into markets.
Pressure the dollar and Treasury yields, accelerating trends already in play.
Signal deeper Fed concern over the economy than markets currently anticipate.
For now, the debate reflects the delicate balance the Fed must strike between fighting inflation and preventing a hard landing for growth.
