Societe Generale thinks the Fed will cut interest rates by 50 basis points this week. This prediction is different from what the market expects, which is mainly a 25 basis point cut. The only other brokerage predicting a 50 basis point cut is Standard Chartered. Right now, traders believe there’s only a 4% chance of this larger decrease happening.

Moderately Restrictive Approach

Societe Generale argues that the Fed’s current moderately restrictive strategy is outdated. They believe a strong adjustment is needed even with ongoing inflation concerns, especially since the Fed is starting to focus more on employment issues. With the market almost fully anticipating a 25 basis point cut this week, there’s a clear chance for a surprising 50 basis point cut. Many believe that the Fed’s strict policies have gone too far, and a bold change is needed. This creates a significant gap between general expectations and what might happen. Support for a larger cut comes from the recent shift in economic risks towards employment. The August 2025 jobs report showed a significant slowdown, with only 160,000 jobs added and the unemployment rate rising to 4.2%. This gives the Fed a reason to act strongly, even while core inflation remains stubborn at 3.3% annualized in August.

Classic Options Play

For traders, this low-probability situation offers a classic options play. With fed funds futures only showing a 4% chance of a 50 basis point cut, volatility is inexpensive. Traders should consider buying out-of-the-money call options on Treasury futures or put options on the U.S. dollar, which could yield significant returns if the Fed surprises the market. The Fed has made bold moves unexpectedly before when it felt it erred in its policy. For example, in late 2018, the market pressured the Fed to switch from raising to cutting rates much faster than expected. This historical example suggests that when the central bank realizes it has gone too far, its response could be much more dramatic than current estimates indicate. Create your live VT Markets account and start trading now.

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