In the U.S. interest rate market on Monday morning, pricing in the Fed’s degree of tightening has receded. But the view remains that borrowing costs are on the rise. Earlier in the morning, the U.S. employment report for August showed rising unemployment and a steady pace of wage growth.
U.S. Employment Grows Better Than Expected in August; Labor Force Participation Rate Rise (1)
Fed officials’ hawkish rhetoric and relatively strong economic data have priced in tightening in the U.S. rate market in recent days.
The rate hike premium priced in for September’s Federal Open Market Committee (FOMC) meeting fell by two basis points (bp, 1bp = 0.01%) to 65bp. Traders still see a higher chance of a rate hike of 75 basis points than 50 basis points, but the 75 basis point outlook suggests a slight retreat compared to before the jobs report was released. Expectations for a peak in this rate hike cycle have also receded slightly.
Randall Closner, a former Fed governor and now a professor at the University of Chicago, said: “It’s just one piece of data and I don’t want to get ahead of it, but I think it’s in line with what the Fed wants. I can,” he said in an interview with Bloomberg Television. “The market received some positives from the jobs report because they were worried it might be very strong,” he said.
Original title:Traders Pare Fed-Hike Bets After Jobs, Treasury Curve Steepens(excerpt)