September 7, 2018 / 2:54 PM / 18 days ago

Strong jobs data backs expectation of more U.S. rate hikes

NEW YORK (Reuters) - U.S. interest rates futures fell on Friday as stronger-than-forecast figures on the jobs market reinforced traders’ expectation of more interest rate increases from the Federal Reserve to keep the economy from overheating.

Traders expected the Federal Open Market Committee, the U.S. central bank’s policy-setting group, to raise key overnight borrowing costs by a quarter point to 2.00-2.25 percent at its Sept. 25-26 meeting.

This would mark the Fed’s third rate increase in 2018 after raising rates in March and June.

“This is a solid report. It reinforced the view that the Fed will raise raises at the next meeting,” said Mark Zandi, chief economist at Moody’s Analytics in West Chester, Pennsylvania.

Domestic nonfarm payrolls grew by 201,000 in August, more than the 191,000 increase forecast of analysts in a Reuters poll.

The most upbeat aspect of the latest jobs report was the acceleration in wages, whose annual gain moved up to 2.9 percent last month, its strongest reading since June 2009.

“Everything is flashing green for a rate hike. I think a rate hike in December is very likely. The Fed has to hike rate at least three times next year, mostly likely four,” Zandi said.

At 9:32 a.m. (1332 GMT), federal funds futures signaled traders fully expect the Federal Open Market Committee to raise key overnight borrowing costs by a quarter point to 2.00-2.25 percent at its Sept. 25-26 meeting.

The fed funds contracts implied traders priced in a 76 percent chance of another quarter-point hike at its Dec. 18-19 meeting, up from 73 percent late on Thursday, CME Group’s FedWatch program showed.

Reporting by Richard Leong; Editing by Chizu Nomiyama and Bernadette Baum

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