Traders keep bets on Fed rate hike later this month

The Federal Reserve headquarters in Washington September 16 2015. REUTERS/Kevin Lamarque

(Reuters) - Traders of U.S. short-term interest-rate futures kept bets on Friday that the Federal Reserve will raise interest rates later this month, after a government report showed the unemployment rate in November fell to a nine-year low.

Chances of a rate hike at the Fed’s Dec. 13-14 meeting were pegged at 95 percent after the report, based on CME’s FedWatch page. Before the release, which also showed a solid 178,000 jobs gained last month, traders saw about a 93 percent chance of a December rate hike, and were betting on at least one more rate hike in 2017.

Fed officials largely believe that a 4.6 percent unemployment rate is lower than the U.S. economy can sustain for any length of time without creating upward and potentially undesirable price pressures. But the report also showed that hourly wages fell.

“I think at 4.6 percent people have to question at what point are we going to see those wage increases,” said Heidi Learner, chief economist at Savills Studley in New York.

The drop in the unemployment rate was in part due to a decline in the labor-force participation rate, which has been falling as the population ages.

President-elect Donald Trump has promised tax reform and infrastructure stimulus that some economists say will draw more workers back to the labor force, allowing the economy to add jobs without overheating.

Reporting by Ann Saphir; Additional reporting by Herb Lash and Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci