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NEW YORK, April 28 (Reuters) - U.S. interest rate futures were steady to marginally lower on Friday as traders saw the Federal Reserve as being on track to raise interest rates further despite news the U.S. economy grew at its weakest pace in three years in the first quarter.
Analysts and traders brushed off government data showing gross domestic product expanded at a 0.7 percent annual rate, blaming the below-forecast reading on a statistical anomaly and seasonal factors.
Instead they said they were confident in an economic rebound in the current quarter together with signs of accelerating employment costs, which would allow the Fed to raise rates as early as June.
The Federal Open Market Committee, the U.S. central bank's policy-setting group, meets next Tuesday and Wednesday and traders see little chance it will raise rates from its current target range of 0.75 to 1.00 percent .
"Wage gains are unambiguously accelerating. Meanwhile, the trend in the unemployment rate still appears to be downward. These data will keep pressure on the Fed to keep tightening," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, wrote in a research note.
Earlier Friday, the Labor Department said its employment cost index (ECI), which measures wages and benefits, grew at a 0.8 percent annualized pace in the first three months of 2017, faster than the 0.6 percent rate seen among economists polled by Reuters.
U.S. rates futures fell almost immediately on the GDP and ECI data before turning flat as traders awaited a vote in Washington to try to avert a government shutdown.
Federal funds futures implied traders saw a 71 percent chance the Fed would raise rates to 1.00-1.25 percent at its June policy meeting, unchanged from late on Thursday, CME Group's FedWatch program showed.
They suggested traders priced in an 84 percent probability the Fed would make such a move at its September meeting, little changed from Thursday's close.
Fed funds contracts implied traders saw a 54 percent chance the Fed would raise rates to 1.25-1.50 percent in December , up slightly from 51 percent late Thursday, according to CME's FedWatch.
Reporting by Richard Leong; Editing by Chizu Nomiyama and James Dalgleish