After the Federal Reserve kept interest rates unchanged, the large bets that the market made to hedge against the risk of interest rate hikes before the decision was rapidly disintegrated. The much-publicized federal funds rate futures holdings surpassed 1 million contracts for the first time in August, involving a nominal amount of about 5 trillion US dollars. This unprecedented level of betting highlights the huge uncertainty facing the market ahead of the July interest rate meeting. The meeting was also the second policy meeting held since Federal Reserve Chairman Kevin Walsh took office, and related positions are now being quickly liquidated. David Robin, managing director of TJM LLC and interest rate strategist, said: “This position allocation reflects a fairly common consensus that the Federal Reserve needs to tighten its policies to maintain its credibility.” He said, “This transaction was misjudged because Walsh had actually sent out a signal before, indicating that it was too early to raise interest rates in July. He has emphasized many times the need for full internal debate, the establishment of policy working groups, and awaiting more economic data. After the resolution was announced, the repricing of the August contract was completed in less than 5 seconds.” According to data released by CME on Thursday, the number of open federal funds rate futures contracts decreased by about 140,000 in August. This means that the relevant short positions have been cut or closed.

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