Traders Start Adding to Bets on Fed Cutting Rates by at Least 50 Basis Points Before Year-End

News, October 16th, traders are actively positioning themselves for a bet that the Federal Reserve will implement at least one unconventional rate cut by the end of the year, indicating that the market is anticipating a more aggressive policy shift than is currently widely expected.

Recent options activity linked to the Secured Overnight Financing Rate (SOFR) has shown that the market is building positions anticipating a 50 basis point rate cut by the Fed at either this month's or December's meeting. This magnitude far exceeds the market's current expectation of two 25 basis point rate cuts reflected in the interest rate swap market.

Despite weeks of ongoing U.S. government shutdown delaying the release of key economic data such as employment, any resolution will unleash a deluge of information reflecting the evolving economic landscape. Some market participants expect this wave of data to provide further evidence of economic softness, thus supporting a larger rate cut. (FX678)