The push back in expectations for when the Fed might start raising rates also means any reduction in the pace of its bond buying - which the Fed has said will begin first - may also occur later than some investors had been betting.came in far short of expectations, probably restrained by a shortage of workers and raw materials even as demand improved rapidly.
U.S. interest rate futures on Friday, however, showed that traders pushed out expectations of a rate hike by roughly three months after Friday morning's payrolls report. Eurodollar futures, a proxy for interest rate expectations, showed a 90% chance of an interest rate hike in March 2023, and fully priced in a hike in June 2023. Prior to the report, investors were betting there was a 90% chance of a hike in December 2022, and a 100% chance in March 2023.
The change in interest rate expectations brings the market more in line with the Fed's dovish approach to the coronavirus pandemic recovery. Though economic data has been improving, the Fed has said it has no plans to raise rates until maximum employment is achieved. TD Securities strategist Penglu Zhao wrote in a note on Friday that speculators had last week piled into bearish bets on Treasury prices, on the expectation of a stellar payrolls print.
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