Jackson Hole annual meeting will be a major event, with a bet on a 50 basis point rate cut facing test in Powell's speech.

Traders are flooding into a specific options trade, betting that the Federal Reserve will turn dovish next month and cut interest rates by more than 25 basis points. As Fed Chairman Powell is set to deliver a keynote speech at the annual symposium in Jackson Hole, Wyoming, market bets on a rate cut by the central bank are soaring, with this meeting seen as a crucial test of investor expectations for easing. While some traders' expectations were tempered by higher-than-expected PPI data released earlier, they still seem convinced that a rate cut is coming next month. US Treasuries stopped their three-day slide on Tuesday, with yields falling across the board. "As the market prepares for Powell's speech in Jackson Hole, we believe the biggest risk facing US Treasuries is whether the Fed chairman will choose to dampen market expectations for a rate cut in September," said Ian Lyngen, head of US rate strategy at BMO Capital Markets in a report. Since the beginning of the month, demand for overnight financing rate options closely tied to policy expectations has been strong. This week, traders have once again ramped up their bets, with a surge in open contracts betting on a 50 basis point rate cut. Analysis shows that if the Fed were to cut rates by 50 basis points at the September policy meeting, the approximately 325,000 options contracts currently valued at around $10 million could potentially yield profits of up to $100 million.