Société Générale Sees Three Fed Rate Hikes on the Way

Société Générale's chief US economist Jan Groen predicts three Federal Reserve rate hikes on the way after the hawkish Jackson Hole Speech from Federal Reserve chair Kevin Warsh. In an August 28 client note, Groen stated that his base-case outcome is for 25 basis-point hikes to come at the Fed's September and December meetings this year, as well as at the March 2027 meeting.

Groen cited a combination of structurally higher super-core PCE (essentially services inflation) that has not returned to pre-pandemic lows, and recent oil and tariffs shocks as teaming up to fuel higher price growth, warranting higher interest rates. Markets are pricing in a 64% chance of a hike in September, with two hikes as the most likely outcome by the December meeting.

However, Groen's updated outlook is more hawkish than that of some other economists and strategists on Wall Street, including Morgan Stanley and JPMorgan, who are skeptical that rate hikes are coming in September. According to Société Générale's chief US equity strategist Manish Kabra, while the S&P 500 has dropped an average of 3% in the month after the first hike in a new tightening cycle, it has risen an average of 4% six-months after the hike.

Kabra noted that if the Treasury yield curve inverts, which is usually defined as the yield on the 2-year note climbing higher than the 10-year yield, stocks have tended to decline by 20%. But he doesn't see this scenario playing out and advises buying the market on news of the first rate hike.