U.S. interest-rate futures traders see next Fed hike in November

Traders work on the floor of the New York Stock Exchange (NYSE) March 1, 2016. REUTERS/Brendan McDermid

(Reuters) - Traders are betting the Federal Reserve will next raise U.S. short-term interest rates in November, about six weeks earlier than previously thought, after the government reported U.S. employers added many more jobs than expected in February.

Traders of futures linked to the Fed’s benchmark policy rate on Friday still saw the odds overwhelmingly against an increase later this month, when central bank policymakers next meet to discuss where to set U.S. borrowing costs.

But they now see about a 53 percent chance that the Fed will raise rates in November, up from about 45 percent before the report, when they expected the Fed to wait until December, based on CME FedWatch data.

Exchange operator CME Group Inc's CME.O CME FedWatch website translates interest-rate futures contracts into probabilities seen for a rate hike at any given Fed meeting.

The Fed raised interest rates in December for the first time in nearly a decade, and at the time signaled it would probably raise them four more times this year.

But after a sharp global slowdown accompanied by a worrisome drop in oil prices sparked stock-market volatility in the first two months of the year, markets dialed back their expectations for Fed rate hikes, with traders at time pricing in no policy change until next year.

Friday’s data has changed that perception, however.

“I think it keeps pressure on the Fed, suggesting pretty good momentum in the economy,” said Jim Paulsen, chief investment officer at Wells Fargo Capital Management in Minneapolis.

Still, despite strong jobs growth, wages did not rise as much as expected, tempering the impact of the report on rate-hike expectations.

Reporting by Ann Saphir and Rodrigo Campos; Editing by Lisa Von Ahn