Traders are starting to increase their bets that the Federal Reserve will cut interest rates by at least 50 basis points before the end of the year.

On October 16th, traders are intensively deploying positions to bet that the Federal Reserve will implement at least one unconventional rate cut before the end of the year, which indicates that the market is predicting a more aggressive policy shift than currently widely expected.

Recent options activity linked to the Secured Overnight Financing Rate (SOFR) shows that the market is accumulating position allocations for a 50 basis point rate cut by the Federal Reserve at its meeting this month or in December. This magnitude far exceeds the two 25 basis point rate cuts currently reflected in the interest rate swap market.

Although the weeks-long US government shutdown has delayed the release of key economic data such as employment, any solution will release a massive amount of information reflecting the evolving state of the economy. Some market participants expect this wave of data to provide more evidence of economic weakness, thereby supporting a larger rate cut. (Golden Ten)