Fed Rate Cuts More Unlikely as Jobless Rate Drops

A drop in U.S. unemployment in September to a 50-year-low pushed traders of U.S. short-term interest rate futures on Friday to pare bets the Federal Reserve will cut rates at both of its two upcoming meetings.

But they continued to price in two more quarter-point decreases in the Fed's policy rate target, to a range of 1.25% to 1.5%, by the central bank's late-January meeting, underscoring conviction that has grown over the past week that rising threats to the U.S. outlook will require the Fed to respond with further easing.

The Fed has cut rates twice this year so far. The September labor market report released earlier on Friday showed employers added jobs at a moderate pace last month, but monthly wage growth was unchanged and manufacturing payrolls declined for the first time in six months.

"It doesn't mean that the economy and the jobs market are falling off a cliff," said John Velis, global macro strategist at BNY Mellon in New York. "On the other hand, it's not strong enough that it's going to take out this additional Fed easing that has been priced into the curve the last few days."

Two reports this week, one showing a contraction in factory activity and another a slowdown in services sector growth, had been seen in financial markets as signs that global economic weakening, trade tensions and geopolitical risks are beginning to spread to the broader U.S. economy.