Traders boldly bet that the Federal Reserve will cut interest rates 12 times before March next year

ChainCatcher news, according to Jinshi reports, traders in the U.S. interest rate options market are taking on an emerging bet related to the Federal Reserve's interest rate trajectory: a potential cut of up to 300 basis points within the next nine months (which translates to 12 cuts at the conventional 25BP increments).

In the past three trading days, positions in the options market related to the secured overnight financing rate indicate that these bets would profit if the Federal Reserve lowers rates to a low of 2.25% in the first quarter of 2025. Unless the U.S. economy suddenly falls into recession, this outcome seems unlikely. Considering that the market expects the Fed to cut rates by about 75 basis points during this period, this is an aggressive bet.

Federal Reserve officials recently predicted a cut of only 25 basis points by the end of this year, and a total cut of 125 basis points by the end of 2025. Now, some are also starting to increase their bets to hedge against the consequences of tail risks, such as rapid and extreme rate cuts.