Markets start to think last week’s Fed hike may be the last

(Reuters) – Financial markets are betting that Federal Reserve policymakers may be more inclined to let last week’s interest-rate hike be their final one after a U.S. government report on Friday pointed to further cooling in the labor market.

Traders of contracts tied to the Fed’s policy rate saw the Fed leaving its benchmark target in the 5.25%-5.5% range at its upcoming meetings. The contracts priced in no more than a 30% chance of another rate hike by year’s end, down from about a 35% chance before the report.

The U.S. central bank has raised rates at 11 of its last 12 meetings, to fight high inflation by slowing the economy.

Friday’s data, showing employers hired fewer workers than expected last month, adds to evidence the effort is working. Still, the report also showed a 4.4% rise in average hourly earnings from a year earlier, and the unemployment rate ticked down to 3.5%, both signs the labor market remains tight.

“On net, the July employment report should not change the Fed’s hawkish lean, but officials will want to see the August employment report and the next two inflation monthly readings before deciding whether they can remain on hold or if further rate hikes are required to cool labor demand and inflationary pressures,” wrote Nationwide Chief Economist Kathy Bostjancic.

(Reporting by Ann Saphir; Editing by Jason Neely and Kevin Liffey)