Traders in the US interest rate options market are taking on an emerging bet related to the direction of Fed interest rates: up to 300 basis points of interest rate cuts over the next nine months (12 cuts at the regular 25BP range). Over the past three trading days, positions in the options market related to the guaranteed overnight funding rate show that these bets will benefit if the Fed cuts rates to a low of 2.25% in Quarter 1 2025. Barring a sudden recession in the US economy, this outcome seems unlikely. This is an aggressive bet considering the market expects the Fed to cut rates by about 75 basis points during this period. Fed officials, who recently forecast just 25 basis points by the end of this year and a total of 125 basis points by the end of 2025, are also stepping up their bets to hedge against the consequences of tail risks, such as a rapid and extreme rate cut.