Traders No Longer Pricing in Full Fed Cut in 2020, Futures Show

(Bloomberg) -- Futures traders are no longer fully pricing in a quarter-point cut from the Federal Reserve next year after the U.S. jobs report showed payrolls exceeding forecasts and faster-than-expected wage growth.

January 2021 fed funds futures imply a rate of 1.32%, which suggests around 23 basis points of easing from here, assuming a current effective fed funds rate of 1.55%. That's less than a standard quarter point easing. Before the data, markets had been pricing in around 29 basis points of reductions by the end of next year.

Futures show a full quarter-point cut is no longer priced in at all, having previously showed a full cut in the second half of 2020.

Payrolls jumped 266,000, the most since January, after an upwardly revised 128,000 advance the prior month, according to a Labor Department reportFriday that topped all estimates in a Bloomberg survey calling for 180,000 jobs. The jobless rate dipped to 3.5%, matching the lowest since 1969. Average hourly earnings climbed 3.1% from a year earlier, exceeding projections, and the prior month was revised higher.

The Federal Reserve will announce its final rate decision for the year on Dec. 11. Market participants expect the central bank to keep the fed funds target range unchanged at 1.5% to 1.75%.

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net

To contact the editor responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net

©2019 Bloomberg L.P.