Traders are betting that the Federal Reserve will make a big move by the end of the year

Traders are starting to bet that the Federal Reserve will cut interest rates sharply at least once before the end of the year, setting policy that could be more aggressive than other market watchers currently expect. Recent trading activity in options tied to the guaranteed overnight funding rate (SOFR) suggests that the market is ramping up plans for a half-percentage-point rate cut, possibly at the meeting later this month or in December. This expectation exceeds the two 25-basis point rate cuts already factored into current interest rate swaps. The release of key employment and other economic data has been delayed due to the prolonged US government shutdown. Once the impasse is resolved, a flood of data will emerge, revealing the latest changes in economic conditions. Some predict that the data could further show economic weakness, thus supporting more rate cuts.