Fed saw rate cut rate slow after strong US jobs data By Reuters

By Ann Saphir

(Reuters) – A pick-up in U.S. jobs growth has financial markets betting the Federal Reserve will follow last month’s half-point interest rate cut with smaller moves and sparked a debate over whether the policy rate monetary will reach a higher level than previously expected.

After the Labor Department on Friday reported a gain of 254,000 jobs in September and the unemployment rate fell to 4.1 percent, futures traders who are settling on the Fed’s policy rate but abandoned bets on another major interest rate reduction before the end of this period. year.

They are now priced for quarter-point cuts at future meetings, settling somewhere between 3.25% and 3.75% by the middle of next year. That’s down from the current range of 4.75%-5.00%, but above the final range of 3.00%-3.25% that traders previously saw as likely.

A policy rate well above 3% would likely continue to impose some restraint on job growth and spending, based on Fed policymakers’ estimate of 2.9% as a “neutral” rate that neither curbs nor it does not stimulate the economy.

Friday’s jobs report “is a potential game changer for the Fed and for market expectations about the size and pace of future rate cuts,” BMO economists wrote. “It is also a major risk to our consumer spending and near-term GDP growth forecasts.”

Expectations could still change ahead of the Fed’s Nov. 6-7 policy meeting, which will come after fresh inflation data and another monthly jobs report. The Fed has said it wants to recalibrate the policy rate as inflation falls closer to its 2 percent target and the labor market cools.