Traders bet Fed will need to slow rate hikes next year

TRADERS of U.S. short-term interestrate futures stuck to bets on Friday that the Federal Reserve will need to slow its pace of rate hikes sharply next year, after a government report showed employers made fewer than expected hires in November.

The addition of just 155,000 jobs last month, less than the 200,000 expected, further entrenches rising doubts in financial markets that the Fed will stick to the three rate hikes it had just a few months ago penciled in for next year.

Doubts about the Fed’s 2019 rate-hike path have also been recently stoked by a sizable stock-market selloff and increased worries about a global slowdown and waning U.S. fiscal stimulus. Recent comments from Fed Chair Jerome Powell about the need to “slow down” when conditions are uncertain have added to skepticism that the Fed can keep raising rates anywhere near the quarterly increases it has delivered for most of the past two years.

Traders of contracts tied to the Fed’s policy rate are pricing in only a single hike next year. Fed policy makers will release fresh forecasts after their next meeting later this month, at which they are widely expected to deliver a fourth and final rate hike for 2018.

“The report is not soft enough to deter a December rate hike but it will contribute to a downward revision in central bankers’ policy guidance for rate hikes in 2019,” said Mohamed El-Erian, chief economic adviser at Allianz in Newport Beach, California. —