The Financial Association reported on March 19 (Editor: Xiaoxiang) that there are signs showing that ahead of tonight's Federal Reserve interest rate decision, the dovish bets in the interest rate market have suddenly retreated...

In recent trading days, many traders have been reducing their bets on the Federal Reserve's rate cuts for this year—just a week ago, the Interest Rates futures market still reflected strong confidence in three rate cuts this year—a total of 75 basis points, including the earliest cuts that might start in June.

However, now, on the eve of the Federal Reserve's policy decision and press conference on Wednesday, the Interest Rates futures market only prices in about two rate cuts, which may not occur until the second half of the year.

Industry insiders say that many traders might hope for clearer directional guidance from the Federal Reserve—currently, the USA's economy is shrouded in a complex environment interwoven with economic and political factors.

Federal Reserve policymakers and investors are facing a tricky situation: on the one hand, the USA economy is still growing, and although inflation is above central bank officials' expectations, it seems to be under some control. This necessitates a cautious attitude towards further rate cuts.

On the other hand, Consumer confidence is deteriorating, as concerns grow that the tariff-led trade policies of the Trump administration may lead to an economic slowdown and re-accelerate inflation, resulting in fractures in the narrative regarding future economic growth. These concerns have triggered a recent collapse in risk assets such as U.S. stocks, and will impact the benchmark. $U.S. 10-Year Treasury Notes Yield (US10Y.BD)$ It has been lowered to the lowest point in several months. Trump's tax policy and planned government spending cuts are also expected to have a certain impact on the economy.

(Status of US economic data: hard data remains decent, soft data is plunging)

In fact, even the famous journalist Nick Timiraos, known as the "New Federal Reserve Correspondent," wrote this Tuesday poking fun at how Federal Reserve policymakers are sometimes divided into those who lean towards combating inflation, known as "hawks" (favoring tightening), and those more inclined to defend the labor market, known as "doves" (favoring easing). However, currently, Powell seems more like a duck—calm on the surface but actually "paddling beneath the murky waters."

As we officially enter the Federal Reserve's meeting day on Wednesday, traders will focus on the press conference by Chairman Powell and his balance between conveying the Fed's current economic outlook and weighing the potential impacts of Trump's trade policy. The Fed will also release its highly anticipated updated Interest Rates "dot plot" during this meeting.

In the December dot plot of last year, Federal Reserve officials had expected to cut rates twice this year, which aligns with the current pricing in the interest rate market.

Vishal Khanduja, head of broad market fixed income at Morgan Stanley Investment Management, stated, "Powell needs to convey to the market: the current economy is running well but is prepared to act at any time."

In the secured overnight financing rate (SOFR) derivatives market, closely related to the Federal Reserve's policy path, traders are positioning bets that the Fed will keep interest rates unchanged at least until the June 18 meeting. So-called hawkish hedging activities increased on Monday, including various structures covering May, June, and July maturities, and data on Tuesday showed that most of these structures were newly established positions.

Meanwhile, initial signals have appeared in the SOFR futures market, indicating that short positions began to accumulate in the June 2025 contract, with open interest in that contract increasing over the past four trading days.

Citigroup strategist David Bieber noted in a report that long positions in SOFR and federal funds rates have been reduced from extreme levels in recent trading days, as the market begins to digest the reality of the expected three rate cuts this year dissipating.

In the spot market, Tuesday's JPMorgan Treasury customer survey also showed a similar trend—as recession fears recede, investors' net positions indicate long positions are at their lowest in a month.

Julien Lafargue, Chief Market Strategist at Barclays Private Bank and Wealth Management, stated, "Ultimately, the Federal Reserve, like the market, urgently needs to gain some visibility on trade, tariffs, and overall policy. We expect Powell to avoid using conditional phrases such as 'if' and 'but', and instead continue to advocate for guidance based on economic data."

According to Stuart Kaiser, head of U.S. Equity Trading Strategy at Citigroup, Options traders currently expect the S&P 500 Index to fluctuate by 1.2% up and down on Wednesday, which is higher than the average fluctuation of 0.8% on Federal Reserve meeting days over the past year.

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Editor/Rocky