Traders Double Down on Massive Fed Rate Cuts as CPI Data Gives Doves the Upper Hand

Markets are pricing in a nuclear option from the Fed—and suddenly, it doesn’t sound so crazy.

The latest inflation numbers just handed doves a loaded gun. Now Wall Street’s betting big on an aggressive pivot—because when has the Fed ever missed a chance to overcorrect?

Rate-cut fever sweeps trading floors

CPI came in cooler than a crypto winter. Suddenly, those ‘outlandish’ 75bps cut predictions look… mainstream. The market’s pricing in more easing than a Vegas high-roller’s weekend.

The Fed’s credibility trap

Powell’s team now faces their worst nightmare: being right about inflation just as everyone starts second-guessing their resolve. Watch for the classic central bank shuffle—talk tough, then fold faster than a meme stock ‘investor’.

Bonus jab: Nothing brings out Wall Street’s inner gambler like other people’s money and a whiff of monetary heroin.

JPMorgan Treasury Client Survey

In the week to Aug. 11, JPMorgan Treasury clients cut long positions by five percentage points, shifting into neutral with short positions unchanged over the week. The outright long positioning was subsequently reduced to the smallest amount in two weeks.

Most Active SOFR Options

In SOFR options across Sep25, Dec25 and Mar26 tenors over the past week there has been a jump in demand for strikes 96.25 and 96.125 across both Sep25 and Dec25 calls as traders look to target additional rate cut premium to be priced into this year’s remaining Fed meetings. One recent FLOW has been a large buyer of SOFR Sep25 96.125/96.25 call spreads, targeting a half-point rate cut at the September policy meeting with the same structure also trading recently in the Dec25 tenor.

SOFR Options Heatmap

The 95.625 strike remains most popular across Sep25, Dec25 and Mar26 options, with a large amount of risk seen in the level via Sep25 puts and Dec25 puts. Other populated strikes include 95.75 and 95.875, where Sep25 puts are prominent. Recent activity around the 95.625 strike has been buying of the SFRZ5 95.875/95.75/95.625 put fly. The 95.75 strike has been used recently also via buying in SFRZ5 96.5625/96.6875 call spreads vs selling SFRZ5 95.875/95.75 put spreads.

Treasury Options Skew

Treasury options skew continues to trade close to neutral across the curve, with long-bond options edging back slightly to favor puts. Recent flows in Treasury options have included a position which targets a 10-year yield rise to approximately 4.33% ahead of Wednesday’s close, for a premium of just over $1 million.

CFTC Futures Positioning

In the week to Aug. 5, asset managers aggressively added to net long positions with particular focus on ultra-long bonds, where the bullish positioning was extended by approximately $7.6 million per basis point in risk. On the flip side, hedge funds extended net short in ultra-long bond futures by around $8.2 million per basis point.

(Adds Bessent comments in third paragraph)

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