U.S. Markets

Traders keep bets on Fed rate hikes in December, June

FILE PHOTO - A police officer keeps watch in front of the U.S. Federal Reserve building in Washington, DC, U.S. on October 12, 2016.

(Reuters) - Traders on Friday kept bets that the Federal Reserve would forge ahead with an interest rate hike in December, even after a government report showed U.S. employers added fewer jobs last month than expected, and wage growth slowed sharply.

Payrolls gained 261,000 in October, rebounding after devastating hurricanes capped hiring in September, though the jobs total was not as much as the 310,000 economists had anticipated. Average hourly earnings gained just one cent.

But traders continued to bank on further gains and a tightening labor market that will force the Fed to raise rates to head off inflation, as Fed Chair Janet Yellen and other U.S. central bankers have said they expect.

“I don’t think it is going to knock the Fed from raising rates in December,” said Sean Lynch, co-head of global equity strategy at Wells Fargo Investment Institute in Omaha. “Flat wages doesn’t concern us too much. We do think wage pressure could start to weigh on the markets next year in a tight labor market.”

After the report traders saw about a 90 percent chance of a December rate hike, little changed from before the report, based on a Reuters analysis of Fed funds futures traded at CME Group Inc's CME.O Chicago Board of Trade.

Traders also continued to see about a 60 percent chance of a further rate hike in June 2018.

Reporting by Ann Saphir in San Francisco and Chuck Mikolajczak in New York; Editing by Jeffrey Benkoe