Divided Fed Has Bond Traders Hedge Wide Range of Policy Outcomes

Traders are reducing their expectations for how much the Federal Reserve will cut interest rates in the months ahead, a shift that illustrates how mixed messaging from central bank officials has clouded expectations for monetary policy.

Options linked to the Secured Overnight Financing Rate show market participants betting on a scenario that sees just one more 25 basis point rate cut in 2025 and a so-called neutral rate — the sweet spot at which policy neither stimulates nor restrains growth — higher than current market expectations. That’s a sharp contrast with last week, when wagers on a 50 basis ...