Markets Brace for Powell’s Jackson Hole Signal as Bets on Sharp Fed Rate Cut Grow

In the days leading up to Federal Reserve Chair Jerome Powell’s address at the annual Jackson Hole symposium, markets have intensified their wagers on a sizeable rate reduction at the central bank’s September meeting. Traders are increasingly positioning for a half-point cut, reflecting heightened conviction despite recent economic data.

A notable surge has occurred in options tied to the Secured Overnight Financing Rate (SOFR), which mirrors expectations for Fed policy moves. Roughly 325,000 contracts have been initiated, representing about $10 million in wagers. Should the Fed deliver the anticipated half-point reduction, these positions could yield gains approaching $100 million.

Even with July’s producer price index showing its strongest annual increase in three years, optimism over policy easing has not subsided. After several sessions of weakness, U.S. Treasuries rallied again, pushing yields lower across the curve. Analysts caution, however, that Powell’s remarks in Wyoming could challenge those assumptions. Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, noted that the front end of the curve is particularly exposed should Powell strike a more hawkish tone, warning that assets priced for aggressive easing could face swift repricing.

Investor sentiment in fixed income has also shifted. According to a recent JPMorgan survey, clients reduced their short positions and moved toward neutrality, with neutral holdings climbing to the highest level in over a month by mid-August. This repositioning reflects caution as market participants weigh the Fed’s potential path. Current futures pricing implies an 80% chance of a quarter-point move at the September 16–17 meeting, though calls for deeper cuts have grown louder, including from Treasury Secretary Scott Bessent.

Not all policymakers agree with that view. Federal Open Market Committee member Alberto Musalem argued in a recent interview that a half-point reduction would not align with present economic conditions. His comments underscore the divide between market expectations and some voices within the Fed.

The Jackson Hole gathering has historically served as a stage for shaping monetary policy direction, and Powell’s speech this year is widely regarded as a critical juncture for rate expectations through the remainder of 2025. With three meetings left on the calendar and global markets attuned to any shift in tone, investors are bracing for signals that could define the trajectory of monetary policy into year’s end.