Traders kept bets Friday that the Federal Reserve will press ahead with an interest-rate hike this month after a government report showed strong jobs growth in November, but expect only slow increases next year.
Fed funds futures contracts imply a 79% chance that the Fed will end seven years of near-zero interest rates when it wraps up its Dec. 15-16 meeting. Traders also see about even odds of a second rate hike by March.
But rate futures maturing in the second half of next year actually rose slightly, showing traders are wagering that the Fed will manage no more than two further hikes before the end of 2016.
That would be less than half the pace the last time the Fed tightened monetary policy.
“While this report can help justify a rate hike in December, it can’t justify anything more than a very gradual path of rate hikes,” said Brian Jacobsen, chief portfolio strategist for Wells Fargo Funds Management.
Nonfarm payrolls increased 211,000 last month, the Labor Department said on Friday, and the unemployment rate held at a 7-1/2-year low of 5%, even as people returned to the labor force in a sign of confidence in the jobs market.
The jobless rate is in a range many Fed officials see as consistent with full employment.
Before the jobs report, traders saw a 79% probability of a rate hike in December, and less-than-even odds of a second rate hike in March.