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

Federal Reserve Policy & Market Expectations - The market anticipates approximately 75 basis points of rate cuts by the end of the year, along with a total of six cuts by the end of next year, potentially leading to disappointment if the Federal Reserve (Fed) doesn't meet these expectations [1][2] - Market pricing suggests a lower terminal Fed funds rate than the Fed's own projections, indicating expectations for a more aggressive pace of cuts [2] - There is uncertainty regarding whether the Fed will commit to an October rate cut, with the approach likely remaining meeting by meeting [3] Inflation & Economic Indicators - Concerns exist that aggressive rate cuts by the Fed could lead to rising long-end yields and inflation expectations, which would be unfavorable [4] - Some inflation metrics are showing reacceleration, which is a concern, although the Fed is currently focused on the employment picture [5] - Recent CPI prints indicate broad-based gains across multiple categories, not just goods inflation, suggesting that factors beyond tariffs are contributing [6] - The impact of tariffs on inflation has been muted so far, but it's possible that this could change in future data [7] Market Reactions & Asset Performance - Ten-year Treasury yields tend to rally on Fed meeting dates, but July saw the opposite, with yields rising [8] - If the Fed doesn't sound as dovish as the market expects, there's a chance that yields could rise, especially with 10-year yields near 4% [9] - The stock market is optimistic about rate cuts, but the question is whether the market is well-positioned even if the Fed doesn't cut as much as expected [10] - Easy financial conditions are already priced in due to expectations of a very easy policy path, including a weaker dollar and tighter credit spreads [11] - Gold is emerging as a safe-haven asset, while the dollar's performance is less pronounced, and the rise in equities is partly attributed to the weakening dollar [13][14]