The bond market is pushing back expectations for the first Federal Reserve interest-rate increase in almost a decade until March at the earliest.
Traders pared bets on a 2015 hike after the Labor Department said the nation gained 142,000 jobs last month, following a revised increase of 136,000 in August. The median forecast in a Bloomberg News survey of economists was for an addition of 201,000. The chances traders now assign for an increase by the Fed’s March meeting are just slightly better than a coin flip, at 51 percent. The likelihood was 66 percent Thursday.
Traders have been ratcheting back liftoff wagers since the Fed’s decision to stand pat at its meeting last month, even as officials have sought to prepare investors for an increase. While Fed Chair Janet Yellen said last week that she was among policy makers who consider a boost would likely be appropriate this year, Friday’s data undermined investors’ confidence in that stance.
The report “increases the chances the Fed will have to wait until next year,” said Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “The Fed has been overoptimistic for a long time on their forecasts for growth.”
The labor data pushed the 10-year Treasury yield below 2 percent for the first time since August, amid global financial- market turmoil. The Fed has two more policy meetings in 2015, with the next decision on rates set for Oct. 28.
"A rate hike in the near-term is probably off the table, and now I think it would be a policy mistake," said Peter Tchir, Brean Capital LLC’s head of macro credit strategy in New York.
Traders see just a 28 percent likelihood that the Fed raises rates by its December meeting, down from almost 60 percent a month ago, according to futures data compiled by Bloomberg. The probability of an increase by January is 37 percent, based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff.
“This data does show the economy weak and it reinforces the question mark that’s been in the back of my mind for a few months whether the Fed has missed the window,” Peter Fisher, senior director of the BlackRock Investment Institute, said in a Bloomberg Radio interview.
