Further Fed rate hike comes into view as job growth soars

(Reuters) -Traders on Friday added to bets that the Federal Reserve will raise interest rates before the end of the year, and keep them high for longer next year, after a U.S. government report showed employers added far more jobs than expected last month.

Implied yields on contracts tied to the Fed policy rate pointed to a nearly 50% chance the Fed will lift the benchmark short-term borrowing rate a quarter of a percentage point to the 5.50%-5.75% range at its December meeting. Before the jobs report, traders had given a quarter-point rate hike then about a 34% chance.

The report, expected to show non-farm payrolls increased by 170,000 in September but in fact showing employers added 336,000 jobs, also had traders paring bets on Fed rate cuts next year. Futures contracts now price in a Fed policy rate of 4.69% at the end of next year, up from the 4.59% seen before the report.

"All of this potentially is inflationary," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder. "This may encourage the Fed to raise interest rates again.”

(Reporting by Ann Saphir with additional reporting by Sinead Carew and Lucia Mutikani; Editing by Chizu Nomiyama Editing by Christina Fincher)

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