(Bloomberg) -- Traders are ratcheting back wagers on US interest-rate cuts as they seek clarity from the Federal Reserve amid a thicket of economic and political crosscurrents.

Just one week ago, US short-term futures markets reflected expectations for almost three-quarters of a point of rate cuts in 2025, including a reduction as soon as June. Now, in the hours leading up to the Fed’s policy decision and press conference on Wednesday, they are barely pricing in two reductions — and not until the second half of the year.

Both Fed policymakers and investors are operating in a tricky environment: On the one hand, the US economy is still growing, and inflation — though higher than central bankers would prefer — appears to be getting under control. This argues for caution when it comes to further rate cuts.

At the same time, consumer sentiment is souring and cracks in the growth story are beginning to show as concerns mount that President Donald Trump’s tariff-heavy trade policies will cause the economy to sputter and re-accelerate inflation. These fears sparked a rout in US stocks and other risk assets in recent weeks and sent benchmark Treasury yields to their lowest in months. Trump’s fiscal policies and planned government cutbacks also will have a bearing on the economy.

Heading into Wednesday, traders will be focused in on Fed Chair Jerome Powell’s press conference and his juggling act between communicating the central bank’s current view of the economy and weighing the potential impact of Trump’s trade policy. The Fed will also release the latest version of its closely watched “dot plot” of rate forecasts.

Powell “needs to acknowledge to the market that the economy is doing fine but they’re ready to act as needed,” said Vishal Khanduja, head of broad markets fixed income at Morgan Stanley Investment Management.

In markets linked to the Secured Overnight Financing Rate, which closely tracks the Fed’s policy path, traders have been targeting positions that focus on the central bank keeping rates on hold through the June 18 meeting. Activity in so-called hawkish hedges picked-up Monday and included a variety of structures across May, June and July tenors, which Tuesday’s open interest data showed as new positions.

Meanwhile in the SOFR futures market, there are early signals of a base of short positions building in the June 2025 contract, where open interest, or the amount of new positioning, has increased in the past four sessions.

Long positioning in SOFR and fed funds “have been trimmed from the extremes over the last few sessions,” Citi strategist David Bieber said in a note, “as the market pushes back against three cuts this year.”

Short Positioning Continues to Build in SOFR June 2025 Futures

In the cash market, Tuesday’s JPMorgan Treasury client survey showed a similar theme of recession angst fading as the net positioning among investors showed the fewest longs in a month.

“In the end, the Fed, just like the market, desperately needs some visibility on trade, tariffs, and overall policies,” said Julien Lafargue, chief market strategist at Barclays Private Bank and Wealth Management. “We expect Jerome Powell to avoid ifs and buts and instead continue to advocate for a data-dependent approach.”

Here’s a rundown of the latest positioning indicators across the rates market:

JPMorgan Treasury Client Survey

In the week up to March 17, a survey of JPMorgan Treasury clients showed long positions drop by 2 percentage points and shorts rising by the same amount, with neutrals unchanged on the week. The all-client net position subsequently dropped to the fewest net longs since Feb. 18.

Treasury Options Premium

Over the past week, there’s been a growing divergence in options premiums in the front- and long-end of the Treasuries curve, where traders are continuing to pay an increasing amount for protection on a rally in the long end of the curve while premium has diminished to hedge a front-end rally. This has been reflected in the price action with the curve flattening from around 35bp seen March 11 to close around 25bp Tuesday.

Most Active SOFR Options

Open interest has gained heavily across both the 95.875 and 95.8125 strikes over the past week, largely due to heavy buying seen in the SOFR Jun25 95.875/95.8125/95.75/95.6875 put condor and the SFRU5 95.875/95.625/95.375 put fly. Other standout flows for new risk over the past week have also included buying the SFRM5 96.00/96.25/96.375/96.50 call condor bought vs. selling SFRM5 95.75/95.625 put spread.

SOFR Options Heatmap

Across SOFR Mar25, Jun25 and Sep25 options the most populated strike is now the 95.625, where a large amount of Sep25 puts were added following flows over the past week including buying in the SFRU5 95.625/95.125/94.625 put fly and SFRU5 95.875/95.625/95.375 put fly for new risk. Other flows around the tenor have included SFRM5 96.00/96.25/96.375/96.50 call condor bought vs. selling SFRM5 95.75/95.625 put spread. The second most-popular strike is now the 96.00, where both the Mar25 and Jun25 calls are heavily populated along with Sep25 puts.

CFTC Futures Positioning

In the week up to March 11, CFTC data showed asset managers liquidating long positions while hedge funds marginally added to net duration short. In total net duration long was unwound by approximately 93,000 10-year note futures equivalents among asset managers while hedge funds added to net duration short by around 18,000 10-year note futures equivalents. Asset managers unwound the biggest amount of long position in ultra 10-year note futures, by roughly $8.7m/DV01 in risk.

--With assistance from Anya Andrianova and Ye Xie.