If the Federal Reserve cuts interest rates "by the book" for the first time and makes a record-breaking bet on a substantial rate cut, it will face huge risks of losses
If Federal Reserve officials choose to kick off the rate-cutting curtain in a standard way, the record-breaking bets could lead traders to suffer significant losses. Data compiled by institutions shows that trading activity in October federal funds futures used by investors to bet on Wednesday's decision has surged to the highest level comparable since the contract was introduced in 1988. These new bets are mostly on the Fed cutting rates by 50 basis points. Data shows a sharp increase in relevant positions this week. Subadra Rajappa, head of U.S. rate strategy at Societe Generale, said this has put the market under significant selling pressure in the case of a smaller rate cut by the Fed and Powell signaling a gradual approach. "If the Fed cuts by 25 basis points instead of 50, the market reaction would be much stronger," she said. "Talk of unwinding, optimism, a looser financial environment, and the like may be put to the test."
Jinshi Data News on September 18th, if Federal Reserve officials choose to kick off the rate cut in a standard way, the record-breaking bets could lead to significant losses for traders. Data compiled by institutions shows that trading activity in October federal funds futures, used by investors to bet on Wednesday's decision, has surged to the highest level comparable since the contracts were introduced in 1988. These new bets are mostly on the Fed cutting rates by 50 basis points. Data shows a significant increase in related positions this week. Subadra Rajappa, head of US rate strategy at Societe Generale, said that this has put the market under significant selling pressure in the case of a smaller rate cut by the Fed and Powell signaling a gradual approach. "If the Fed cuts by 25 basis points instead of 50, the market reaction will be much stronger," she said. "Claims such as unwinding, optimism, and a looser financial environment may be put to the test."