The Fed could disappoint Wall Street this week, says Societe Generale's Subadra Rajappa

Core Viewpoint - The Federal Reserve may disappoint market expectations regarding interest rate cuts, with a focus on employment and inflation metrics influencing their decisions [1][5][10]. Interest Rate Outlook - Market anticipates a total of six rate cuts by the end of next year, with the terminal Fed funds rate expected to be lower than the Fed's projections [2][10]. - Recent inflation metrics have shown a broad-based reaceleration, which could complicate the Fed's decision-making process [5][6][7]. - The Fed is likely to adopt a measured approach, assessing economic conditions on a meeting-by-meeting basis rather than committing to aggressive cuts [4][9]. Market Reactions - If the Fed does not align with market expectations for aggressive rate cuts, there is potential for yields to rise, particularly in the 10-year Treasury [9][11]. - Financial conditions remain easy, influenced by market expectations of a lenient policy path, which could lead to an unwind if the Fed's actions do not match these expectations [11][12]. - The current market sentiment is optimistic about potential rate cuts, but uncertainty remains regarding the impact on equities if cuts are less than anticipated [10][11]. Safe Haven Assets - Gold has emerged as a preferred safe haven asset, contrasting with the dollar's performance, indicating a shift in investor sentiment [13][14].