Expectations for a December Federal Reserve rate increase strengthened after fresh U.S. labor market data pointed to continued hiring momentum. Futures tied to the Fed's policy rate price in about an 80% probability of a quarter-point move next month, up from roughly 75% before the report.
Highlights
- U.S. employers added 165,000 jobs in the latest report, more than double economists' forecasts, while unemployment edged down to 4.1%.
- Fed funds futures now price an 80% chance of a quarter-point December rate hike, up from 75% before the jobs data release.
- Stronger-than-expected payroll growth is reinforcing traders' expectations for further Federal Reserve tightening at the December policy meeting.
Jobs report lifts December tightening expectations
As reported by Reuters, traders increased their bets on a second Federal Reserve interest-rate hike in December after a U.S. government report on Friday showed stronger-than-expected job gains last month.The report showed the unemployment rate edged down to 4.1% and employers added 165,000 jobs. That payroll increase was more than twice the level economists had anticipated, reinforcing expectations that the central bank could tighten policy again next month.
Market implications for rate outlook
Futures linked to the Fed's policy rate are pricing about an 80% probability of a quarter-point increase in December after the data. Before the jobs report, traders were assigning about a 75% chance to such a move.The shift suggests investors see the labor market data as supportive of further monetary tightening, with the stronger employment figures feeding directly into expectations for the Fed's next policy decision.
Our earlier article on UBS’s extended Fed tightening outlook explained how persistent inflation pressures pushed the bank to forecast additional rate hikes, including a move in December and another later on. We also noted that market pricing increasingly reflected a “higher-for-longer” policy path as investors reassessed the Fed’s next steps after hotter inflation data.
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