(Recasts, adds background and quote)
NEW YORK, Oct 28 (Reuters) - Traders on Friday increased their bets that the Federal Reserve will raise interest rates at its last policy meeting of 2016 as data showed the U.S. economy accelerated in the third quarter at its fastest pace in two years.
The Commerce Department said gross domestic product expanded at an annualized growth rate of 2.9 percent, stronger the 2.5 percent forecast among economists polled by Reuters, on a bounce in exports and inventories. The GDP grew at a 1.4 percent pace in the second quarter.
“There’s nothing here that will put the Federal Reserve off hiking in December,” said Luke Bartholomew, fixed income manager at Aberdeen Asset Management in London.
Federal funds rate futures added to their earlier losses in the wake of the latest GDP data, with the December contract falling to a more than five-week low.
The futures implied traders saw about an 83 percent chance that the Federal Reserve would raise interest rates at its Dec. 13-14 policy meeting, up from a 78 percent likelihood seen late on Thursday, according to CME Group’s FedWatch program.
On the other hand, futures suggested traders saw roughly a 10 percent probability that the U.S. central bank would raise rates at its upcoming policy meeting next Tuesday and Wednesday. (Reporting by Richard Leong; Editing by Chizu Nomiyama)