Trader expects recession risk to force the Fed to boost the economy through rate cuts

BlockBeats News, March 12th, traders in the futures and options markets are increasingly betting that due to the Trump administration's aggressive policy agenda, the Fed's interest rate cuts this year will exceed expectations.

Washington's tough stance on tariff issues has pushed investors towards safe-haven assets such as US treasuries. If signs of recent economic difficulties continue to increase, US treasuries will become even more attractive. On Monday, the rising likelihood of an economic recession spurred new demand for short-term and long-term US Treasury futures.

Options traders anticipate that the risk of a recession will increase pressure on the Fed, forcing it to cut interest rates in the coming months to boost the economy. This has led to increasing demand for call options on two-year US treasuries, and if the Fed becomes more aggressive on rate cuts, these options will pay off.

The premium on these US Treasury call options has risen to the highest level since September last year, when concerns about an economic slowdown were raised as job growth slowed during the final months of Biden's presidency.