Traders Load Up on Hedges Against Dramatic Fed Rate Cut Shifts

Traders are ramping up bets that hedge against dramatic shifts in the Federal Reserve’s interest-rate path as questions on the economic impact of Trump’s administration evolving policies persist.

Overall, the swaps market continues to price in two rate reductions this year beginning in October. However, the uncertainty surrounding the outlook for the US economy has pushed traders in the options market to buy protection for a wider range of outcomes, from the possibility of no rate cuts at all, to a series of half-point reductions before the end of 2025. Goldman Sachs and Citigroup have also taken opposing views on when the Fed will start easing.