Market Expects Fed to Hold Rates in January, Options Market Increases Bet on Fed Standing Pat All Year
BlockBeats News, January 14th, more and more options traders are excluding the expectation of a Fed rate cut in 2026 and are instead betting on it maintaining the interest rate unchanged throughout the year. This trend can be traced back to at least last Friday when U.S. employment data showed an unexpected drop in the unemployment rate. According to market pricing, this has almost eliminated the possibility of a Fed rate cut this month, prompting more and more traders to postpone their expectations for a rate cut in the coming months. TJM Institutional Services interest rate strategist David Robin pointed out: "From a data perspective, the probability that the Fed will keep rates unchanged at least until March has increased, and as each meeting passes, the likelihood of rate stability increases." The options flow closely linked to the Fed's short-term benchmark rate has recently conveyed a more hawkish signal.
New option positions are mainly concentrated in March and June contracts to hedge against a scenario where the Fed's next rate cut action is continuously delayed. Positions targeting longer-dated contracts are expected to benefit from the Fed's stance of keeping rates unchanged throughout the year. Robin stated that the cost of these trades is low regardless of whether the market believes the Fed will stand pat. As a prudent risk manager, you would want to hold such positions. (FX678)
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