September 1, 2017 / 1:53 PM / 3 months ago

Traders see next Fed rate hike in mid-2018

(Reuters) - Traders held to expectations Friday that the Federal Reserve will probably wait until the middle of 2018 before raising rates, after a government report showed employers added fewer jobs last month than expected.

U.S. job growth slowed in August after two straight months of strong gains, though the pace of increase was still fast enough to set the stage for the Federal Reserve to start trimming its massive bond portfolio later this month.

The Fed, which has raised rates twice this year, has said it expects to raise rates one more time in 2017. Traders have consistently bet against that possibility, seeing next year as more likely. The Fed will release fresh forecasts when it next meets on Sept. 19-20.

“I think if the markets are discounting December (Fed rate hike) just on the back of this, it’s probably premature,” said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd. In New York. “Keep in mind that there is going to be a lot of things happening in the U.S. between now and December, including all of the legislation in Congress that needs to be passed.”

Traders now see about even odds the Fed will raise rates next June, based on a Reuters analysis of Fed funds futures traded at CME Group Inc.

The unemployment rate ticked up to 4.4 percent in August, the report showed. Most Fed policymakers believe that is still well below the sustainable long-term level of unemployment in the United States.

Reporting by Ann Saphir with reporting by Sam Forgione in New York; Editing by Chizu Nomiyama

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