The more hostile environment in credit markets has raised the odds of a rate cut by the U.S. Federal Reserve Board in the coming weeks, says National Bank Financial in a research note.

However, the Fed shouldn’t have to move before its next meeting, NBF says.

NBF notes that it is possible that the Fed could move before its next scheduled rate setting, which is still more than a month away (September 18), but that this is not likely. “Although [an inter-meeting move] is a possibility, history shows that the Fed can be stoic in the face of a financial market correction.”

“Financials had to suffer a three-month ordeal and lose more than 20% of their value during the summer 1998 credit crisis before the Fed engineered its first rate cut (the S&P 500 corrected about 15% over the same period),” it reports.

“Despite dropping significantly in recent weeks, financials are currently down ‘only’ 8% since the start of July (versus about 6% for the S&P 500),” NBF says.

“The markets may need to correct more before convincing the Fed that the economic expansion is at risk,” NBF concludes.