Odds of December Fed Rate Hike Decline as Job Gains Disappoint

A rebound in hiring last month failed to impress money-market traders, as they marked down the odds of the Federal Reserve lifting rates this year.

Yield implied by priced on both federal funds and Eurodollar futures fell after the Labor Department announced a 223,000 net increase in April employment, while also revising lower the prior months to an 85,000 gain.

The odds of a Fed lift-off in December are 52 percent, according to CME Group Inc. calculations of fed funds futures prices. That’s down from 62 percent earlier this morning.

The yield on December 2015 fed funds future is 0.32 percent, down from 0.355 percent earlier this morning. In Eurodollar futures, which traders also used to speculate on the path of Fed policy, the December rate fell to 0.565 percent, from 0.63 percent before the data.

“The downward revision to March, even though the Bureau of Labor Statistics and ADP are now in line, and the soft earnings component, are what markets are cheering, as the Fed will use it as an excuse to maybe wait even longer to raise rates,” wrote Peter Boockvar, chief market strategist at the Lindsey Group in Fairfax, Virginia.

Figures Wednesday from the Roseland, New Jersey-based ADP Research Institute, showed that companies in April added the fewest number of workers in more than a year. A 169,000 April advance in employment was the smallest since January 2014 and followed a 175,000 gain in March that was smaller than initially estimated.

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