Bets on Outsize Fed Cut Gain Steam as CPI Data Backs Doves

A largely benign US inflation report is bolstering the case for traders betting that the Federal Reserve will soon cut interest rates, with some seeing an increased possibility of an outsized reduction.

For weeks, investors have piled into swaps, options and outright Treasury longs to wager that subdued inflation will allow the Fed to lower borrowing costs in coming months. There’s some vindication for that view, with shorter-term Treasury yields dropping for a second day on Wednesday, while swaps traders lifted the odds of a September rate cut to more than 90%.