June is “back in play” for a Federal Reserve interest rate increase, according to Pacific Investment Management Co.’s Scott Mather.
The co-manager of the $88 billion Total Return fund is leading a chorus of analysts and investors saying that Friday’s stronger-than-expected jobs report may spur Fed officials to boost rates three months from now. Just weeks ago, derivatives markets had ruled out another rate increase through the end of 2017.
“This type of number does raise the probability that June is back in play,” Mather said in an interview with Bloomberg Television. The Fed “may begin to position for that as early as the March meeting in terms of describing their outlook going forward.”
The U.S. gained 242,000 jobs in February, a Labor Department report showed Friday, compared with the 195,000 median forecast in a Bloomberg survey of economists. The gains are spurring declines in Treasuries as traders ramp up wagers the Fed will raise rates sooner than previously thought. Fed funds futures now indicate a 42 percent chance of an increase by June, up from 35 percent a week ago, according to data compiled by Bloomberg.
Futures traders are now fully pricing in another rate increase by January of next year. They’ve pulled forward their bets by nine months in the last week, based on when the overnight rate implied by fed funds futures contracts first climbs above 0.625 percent — the midpoint of the range expected in the next hike.
Mather said he expects the Fed will raise rates two or three times this year.
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Wall Street analysts including David Keeble, the New York-based head of fixed-income strategy at Credit Agricole SA, agree.
“I think June is definitely in the cards. It could come even earlier,” Keeble said in a phone interview. “There’s no arguing with the fact it’s a good number.”
Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds, which oversees about $242 billion, said in an e-mail that oil and the dollar will likely stabilize in the next month, and that U.S. employment data will likely continue to improve.
“The market is underpricing the possibility of a June hike,” he wrote.
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