Rate futures suggest Fed on hold longer into 2011
U.S. interest-rate futures traders are betting the Federal Reserve will keep short-term interest rates on hold for another year after a government report showed private companies hired fewer people than expected last month, suggesting the economic recovery is losing steam.
Payrolls fell 125,000, more than expected, and the jobless rate unexpectedly dropped to 9.5 percent as more people gave up even looking for work, a Labor Department report showed on Friday.
Those figures are adding to worries about the sustainability of a recovery from the worst downturn since the Great Depression.
We're already beginning to price in this double dip economic situation, said Doug Warner, a broker for newly-formed Grant Park Securities in Chicago.
The Fed has kept its target rate for overnight lending between banks at a between zero and 0.25 percent since December 2008, and has pledged to keep rates extraordinarily low for and extended period.
Now, Warner said, the first smidgen of a thought process that the Fed will adjust its range is for June of next year.
Futures traders are now fulling pricing in an increase in the rate to 0.5 percent at the June 22, 2011 meeting of the Fed's policy-setting committee, trading in the July 2011 Fed funds futures contract at CME Group Inc's (CME.O) Chicago Board of Trade shows.
Across the board, futures traders pushed their expectations for a hike out a bit farther after the jobs report, trading showed.
Implied prospects that the Fed will raise its target for overnight lending between banks this year fell to 13 percent. They stood at 17 percent before the jobs report, based on trading in the December Fed funds futures contract.
(Reporting by Ann Saphir. Editing by Theodore d'Afflisio)
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