Traders boost bets on Fed interest rate rises

By Ann Saphir

(Reuters) – The U.S. Federal Reserve is increasingly likely to raise rates a fourth time this year after a government report showed employers added more jobs than expected in May, bets by traders in short-term interest-rate futures showed.

Traders remain quite confident of rate increases in June and September, prices of the futures show, and see about a 36 percent chance of a rate hike in December, up from about 32 percent before the report. The Fed has raised rates once this year so far, in March. Traders also increased bets on further rate increases in 2019.

U.S. job growth accelerated in May, with employers adding 223,000 jobs, and the unemployment rate dropped to an 18-year low of 3.8 percent, Labor Department reports showed early Friday.

The strong job gains, along with 2.7 percent increase in average hourly earnings, “keeps the Fed on track for a rate hike in the next couple of weeks and maybe even keeps alive the thought there’s a possibility of a fourth rate hike down the road,” said David Joy, chief market strategist for Ameriprise Financial (NYSE:) in Boston.

Not all at the Fed are convinced.

Though there are some signs wage growth is picking up, it is “still low,” Minneapolis Fed President Neel Kashkari said after release of the employment numbers. His views are more dovish than those of most of his colleagues, and in the past he has called for waiting for faster wage growth and inflation before raising rates much further.

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