Goldman Sachs strategists have issued a cautionary note regarding the market’s current expectations for Federal Reserve interest rate cuts. The market anticipates a significant easing of monetary policy by next year, expecting rate reductions totaling 1.25 percentage points. However, Goldman Sachs projects a more conservative scenario, anticipating only a modest quarter-point decrease.

This perspective comes amid a backdrop where recent Commodity Futures Trading Commission data has highlighted an unprecedented number of long positions in SOFR futures. Furthermore, options markets are pricing in aggressive rate cuts—up to 250 basis points by September—which far exceeds the current projections in the swap market.

Despite signs of bullish sentiment among investors, such as the positive results from JPMorgan Chase & Co (NYSE:JPM).’s Treasury client survey and a decline in 2-year yields following weaker-than-expected ISM manufacturing data, Goldman Sachs maintains that these expectations for aggressive and swift monetary easing may be overly optimistic.

In response to what they consider an overpricing of rate cuts in the market, Goldman’s team is advising options traders to sell June 2024 SOFR 95.25 call options. This strategy aims to capitalize on the discrepancy between the market’s expectations and Goldman’s more measured forecast for future interest rates.