Traders Hedge Against Fed Cut Even as Odds of Reduction Diminish

Investors are stepping up bets in the options market that the Federal Reserve will lower benchmark borrowing costs at a third straight meeting next month.

Traders are looking to cash-in on the potential of a quarter-point rate cut by piling into December options linked to the Secured Overnight Financing Rate, which closely tracks the federal funds rate. The bets come as a deluge of economic data starts to trickle in after the government’s longest shutdown in history.

Some central bank officials have recently expressed doubt about the need for another reduction this year after cutting rates in September and ...