Societe Generale and Standard Chartered expect the Fed to cut interest rates by 50 basis points, although markets generally expect the Fed to cut interest rates by 25 basis points

Key points: Societe Generale said that Fed policy is “over-reduced” and more powerful actions must be taken. Societe Generale and Standard Chartered both expect a 50 basis point rate cut this week's Federal Open Market Committee meeting. The market generally expects the Federal Reserve to cut interest rates by 25 basis points slightly, and the FedWatch on the Chicago Mercantile Exchange (CME) expects the probability of a half basis point cut is only 4%. Analysts at Societe Generale believe that the Fed's "moderate tightening" position has been maintained for too long, resulting in excessive policy tightening. Given that inflation shows stickiness, but the employment outlook is weakening, they believe that the Fed's dual mission has decisively turned to supporting employment. Societe Generale is currently predicting the Fed will cut interest rates by 50 basis points and said more powerful adjustment measures are needed to rebalance risks. They are not alone. Standard Chartered is the only large institution that publicly predicts a 50 basis point cut rate this week’s FOMC meeting. Markets still expect a 25 basis point rate cut, despite these inverse forecasts, traders still expect a smaller rate cut. The futures market currently expects a 96% chance of a 25 basis point cut, while a 50 basis point cut is only 4%. The divergence highlights the uncertainty facing policymakers: inflation remains above target, but the number of applicants for unemployment benefits has soared to its highest level in four years, indicating a crack in the labor market. Why this is important for the market The rate cut is greater than expected. It may be: As liquidity is more likely to return to the market, boosting risky assets such as stocks, Bitcoin and gold. Pressure on US dollar and U.S. Treasury yields has accelerated the existing trend. It shows that the Fed's concerns about the economy are deeper than the market currently expects. For now, the debate reflects the delicate balance the Fed must strike between curbing inflation and preventing a hard landing for economic growth.