The better-than-expected expected non-farm payrolls report on Friday raised the odds of a September Federal Reserve interest rate increase but wasn’t strong enough to put June back on the table, according to the futures market.
The members of the Fed’s policy board are locked in what has become an increasingly public debate on when will be the right time to raise rates, which have been near zero since December 2008.
At its last meeting, the Fed removed all calendar references in its forward guidance and said that recent economic weakness might be “transitory” in nature. This means that bank is now entirely dependent on data so a rate increase could happen at any future meeting.
In data today, total non-farm payroll employment increased by 280,000 in May, easily beating the forecast 226,000, while the unemployment rate was essentially unchanged at 5.5 percent.
Since the US central bank’s dual mandate is to promote maximum employment and maintain longer-run inflation at two percent per year, this forecast-beating employment read could inch the FOMC closer to increasing the federal funds rate.
The CME Group’s FedWatch still puts the possibility of a June interest rate hike at zero percent, but the odds of a rate increase in September are now at 31 percent, up from 25 percent last Friday.
The odds that the Fed will raise interest rates in December has climbed to 68 percent from 58 percent last week and there’s an 88-percent chance that it will act by the end of first quarter of 2016, unchanged from last week.
FedWatch is based on 30-Day Fed Funds futures prices, which have long been used to express the market’s views on the likelihood of changes in US monetary policy.
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