On the Eve of the Jackson Hole Symposium, Traders Bet on Aggressive Fed Rate Cuts

According to Jinse Finance, traders are flocking to a specific type of options bet, anticipating that the Federal Reserve will implement a significant rate cut of more than 25 basis points next month. Since the beginning of this month, there has been strong demand for positions related to the Secured Overnight Financing Rate (SOFR), which is closely tied to policy expectations. This week, traders have further increased their bets, with open interest in contracts targeting a 50 basis point rate cut rising sharply. In a few days, Federal Reserve Chair Jerome Powell is set to deliver a key speech at Jackson Hole. Previously, U.S. inflation data exceeded expectations, prompting some traders to lower their rate cut forecasts. Although there has been a short-term pullback, traders still appear confident that a rate cut will occur next month. On Tuesday, U.S. Treasuries ended a three-day sell-off, with yields across all maturities declining. Ian Lyngen, Head of U.S. Rates Strategy at BMO Capital Markets, stated, “As the market prepares for Powell’s speech, the biggest risk facing U.S. Treasuries is that the Fed Chair chooses to dampen the widespread expectation of a September rate cut.”