Societe Generale: The market is still too optimistic about the Federal Reserve's interest rate cut expectations

Subadra Rajappa, interest rate strategist at Socie ́ te ́ Ge ́ ne ́ rale, noted that while Fed Chair Jerome Powell has made it clear that a December rate cut is not a foregone conclusion, the market is still overpricing the extent of the Fed's monetary policy easing. She analyzed that the recent two rate cuts were proactive measures to anticipate a worsening labor market, but the scope for further rate cuts may now be closed. "The economy is relatively strong, but the inflation outlook is sticky", which is the core message Powell is trying to convey. Rajappa added that while the FOMC continues to focus on the labor market, inflation has been above target since March 2021, and "policymakers may want to move forward with inflation control at the same time". In her opinion, the Federal Reserve is trying to strike a difficult balance between guarding against an economic downturn and containing persistent inflation.