Traders are placing aggressive bets that the incoming Federal Reserve chair and delayed economic data releases this month will bolster President Trump's calls for interest rate cuts.
In the U.S. futures market, demand is rising for short-end rate curve structures tied to the Secured Overnight Financing Rate (SOFR), which closely tracks expectations for the Fed’s policy rate. These wagers reflect growing speculation that monetary easing could accelerate after Chair Jerome Powell’s term ends in May next year. The first policy decision under the new Fed leadership will come on June 17.
New positions began accumulating after White House National Economic Council Director Kevin Hassett emerged as the frontrunner to succeed Powell. Trump stated on Tuesday that the selection process is down to "just one person" and referred to Hassett as a "potential Fed chair" during a cabinet meeting. He indicated a final decision would be announced early next year.
Some industry insiders warn that such an announcement could create a "shadow Fed chair," complicating the central bank’s policy communication and potentially sowing confusion when markets crave clarity.
Leveraged futures traders are already gaming out scenarios. On Monday, a massive buyer entered a SOFR futures butterfly structure—the largest such trade in over a year. Activity in 3-month, 6-month, and 12-month SOFR spreads has also surged recently as traders seek more ways to bet on rate cuts.
The Fed chair speculation isn’t the only driver. On December 16, delayed November U.S. labor market data will be released just before the Fed’s January policy meeting. If the figures confirm recent signs of softening, dovish bets could intensify.
Analysts note that short-end rates are more likely to price in rate-cut expectations early, given trends in labor market slack indicators.
Strategists favor positions benefiting from a steeper yield curve, including short-end futures via the SOFR Dec-2026/Dec-2027 spread and conditional 2s/10s bull steepener strategies in longer tenors. These bets could gain further momentum if Hassett is confirmed.
Growing wagers on a dovish pivot and higher December rate-cut odds pushed the 10-year Treasury yield toward 4% last week. Late Tuesday, Treasuries edged higher overall, recouping earlier losses, though the 10-year yield briefly hit 4.11%—a near two-week high.
Jack McIntyre, portfolio manager at Brandywine, argues that cutting rates while inflation remains above the Fed’s target may drive long-term yields higher even as short-end rates fall:
"A Hassett confirmation would likely trigger bear steepening. I see myself as part of the bond market’s policing force—signaling to policymakers. Do we need to signal now? Too early to say. For me, it’s still wait-and-see."
Comments