Traders are betting the Federal Reserve will wait well into 2015 to raise interest rates after a U.S. government report showed the labor market lost steam even before this month's government shutdown.
U.S. employers added just 148,000 jobs last month, the report showed.
Fed funds futures contracts rose as traders took that fairly weak reading to mean the Fed would likely raise rates even later than they had expected. The price of the contracts, tied to the Fed's policy rate target, rises when traders see the Fed taking more time before raising rates.
Futures prices now suggest the Fed will raise rates no earlier than April 2015, giving the probability of an increase in that month about 54 percent, according to CME Group's Fed Watch, which generates probabilities based on the price of Fed funds futures traded at CME Group Inc's (CME.O) Chicago Board of Trade.
Before the report, traders were giving a probability of about 59 percent for an April 2015 Fed interest-rate increase.
In September Fed officials unexpectedly decided to stand pat rather than trim their $85 billion-a-month bond-purchase program, saying they needed more confirmation of labor-market improvement before reducing stimulus. They meet again next week.
Even before the report, a 16-day government shutdown that ended just last week has made even hawkish Fed policymakers loath to push for tapering the program.
The shutdown delayed data, including Tuesday's labor-market report, and will make it difficult to read the economy properly for months, some Fed officials have said.
The budget agreement that ended the shutdown funds the government and allows the Treasury to continue to borrow only through early next year, setting the nation up for a possible second shutdown.
"This really does push us into a January, February mode (for tapering) and if there is a shutdown possibly even further," said Aaron Kohli, interest-rate strategist at BNP Paribas in New York.
(The story has been filed again to add dropped word 'into' in the headline.)
(Reporting by Ann Saphir, Karen Brettell and Ellen Freilich; Editing by James Dalgleish and Chizu Nomiyama)