Traders are starting to bet that the Fed will cut interest rates significantly at least once before the end of the year.

On October 16, traders began betting that the Fed will significantly cut interest rates at least once before the end of the year, confident that the policy may be more aggressive than the current expectations of other market observers. Recent trading activity in options linked to the Secured Overnight Financing Rate (SOFR) shows that the market is increasing its positioning for a half-point rate cut, which could occur at a later meeting this month or in December. This expectation exceeds the two rate cuts of 25 basis points each currently priced in the interest rate swaps. Due to the prolonged government shutdown, the release of key employment and other economic data has been delayed. Once the deadlock is resolved, a large amount of data will emerge, revealing the latest changes in economic conditions. Some expect that this data may further indicate economic weakness, thereby supporting more rate cuts. (Jin10)