Investing.com — The Federal Reserve will deliver a hawkish rate cut on Wednesday, but not as hawkish as the market expects, Standard Chartered said in a recent note, expecting the Fed to follow up with another rate cut in January amid ongoing softness in the labor market.

“Fed funds futures now price less than a 20% probability of a follow-up cut on 29 January,” Standard Chartered said, adding that this was “too low.”

The December labor market data will likely point to ongoing softness that would justify another cut in January.

“Our baseline forecast is that it cuts again on 29 January, because we expect the incoming labour market data to soften further,” the bank said.

“A higher unemployment rate or nonfarm payrolls growth of 125k or less should be enough [for the Fed to cut in January],” it added.

With a December rate cut now widely expected, the Fed’s summary of economic (SEP) projections are likely to garner the bulk of investor attention amid expectations that the Fed could signal fewer cuts.

But the Fed is likely to wait until at least March to make a major tweak to monetary policy, Standard Chartered said. The bank expects the Fed’s summary SEP to project an end-2025 federal funds rate at 3.625%, with a potential drop to 3.125%.

While the bank believes the the Fed is poised to cut rates, the extent and timing of future cuts may be more measured than currently anticipated by the market.