Jobs data eases pressure for Fed Oct rate cut

By Chris Reese

NEW YORK (Reuters) - A stronger-than-expected September jobs report on Friday has Wall Street backing away from expectations the Federal Reserve will cut rates in October, although the majority are still forecasting monetary easing.

A Reuters survey taken shortly after the government released stronger-than-expected nonfarm payrolls data on Friday showed 10 out of 18 primary dealers polled expect a quarter-percentage-point rate cut in October.

That was down from 12 out of 18 calling for such a cut in a poll conducted directly after the Fed slashed benchmark interest rates by half a percentage point at a policy meeting on September 18.

However, eight out of the 18 dealers, which include banks and securities brokers designated by the Fed to deal with trading in U.S. government securities, are now looking for a rate cut at a Fed policy meeting in December, up from six of 18 calling for such a cut in the previous poll.

The Commerce Department said the economy generated 110,000 new jobs last month, which was above expectations for a reading of 100,000, while a previously reported August contraction was revised to show a gain of 89,000.

"There was no urgency in the data today to cut in October, but the weaker economic trend is in tact," said Eric Green, an economist at Countrywide Financial in Calabasas, California, adding: "The economy is weakening, but not sufficiently so to cut rates in October but it will weaken sufficiently to cut rates thereafter."

Overall, dealers are not looking for the Fed to embark on an aggressive easing campaign, with 13 out of 18 looking for only a single quarter-point rate cut by the end of the year.

In fact, half of the 18 dealers surveyed expect the Fed's easing cycle to end after one more quarter-point cut, which would take the fed funds rate to 4.50 percent from the current level of 4.75 percent.

The poll also showed few firms expect aggressive rate cuts, with only three dealers calling for the fed funds rate to dip below 4.50 percent by the end of the easing cycle.

Fed fund futures fell on Friday after the payrolls data, implying a 46 percent probability of a quarter-point rate cut in October, down from a 76 percent probability of such a cut prior to the release of the jobs numbers.

"Maybe (the payrolls data) does say that the Fed skips the month of October on a rate cut, but there is still evidence here that job growth is not growing like it was," said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.