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March has fallen further out of view, according to traders parsing the latest jobs report for clues on when the US central bank will next lift interest rates.
Despite stronger-than-expected job gains in January, which showed payrolls rose by 227,000 in the month, investors have zeroed in on a softer-than-forecast year-on-year gain in wages, writes Eric Platt.
The lower-than expected rise propelled prices of near-term federal funds futures contracts higher, which correspond to lower rates.
The odds the Fed will increase rates by 25 basis points in March dropped to roughly 9 per cent from 18 per cent a day earlier, according to CME Group. Strategists and portfolio managers pointed to the lacklustre wage figures for the drop in expectations.
“In an environment where the Fed is the only major central bank in a tightening move…this report is an offset to any urgency for the Fed to push forward its normalisation plans,” said Ian Lyngen, a rates strategist with BMO Capital Markets.
Contracts for December 2017 put the federal funds rate at roughly 1 per cent, about where it was a day earlier. That would imply just two rate rises by the Fed this year, below the three increases projected by central bank policymakers at the end of last year.
The odds implied by the contracts for three rises this year slid marginally to 34 per cent after the payrolls figures, from 36 per cent on Thursday.
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