Traders Now See 70% Chance of Fed Rate Increase in December

In the eyes of futures traders, a December Federal Reserve interest-rate increase looks increasingly certain.

Traders see a 70 percent chance that the Fed will raise its benchmark rate from near zero at its next meeting, up from a 56 percent probability before Friday’s release of stronger-than-forecast U.S. labor data. The calculation assumes the effective fed funds rate averages 0.375 percent after the first hike.

"It’s definitely a hurdle that’s out of the way,” said Thomas Simons, a government-debt economist in New York at Jefferies Group LLC, one of the 22 primary dealers that are obligated to bid U.S. debt sales. “The November report doesn’t have to be a blowout to justify an increase in December. It really does check a lot of boxes for the Fed: good wage data, good payrolls."

Fed Chair Janet Yellen said this week that a move next month is a “live possibility” if economic data hold up. It would be the central bank’s first increase since 2006.

The nation gained 271,000 jobs last month, following an increase of 137,000 in September, Labor Department data showed. The median forecast in a Bloomberg News survey of economists was for an addition of 185,000. Average hourly earnings rose by 0.4 percent from the prior month.

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