Fed seen on shallower rate path after jobs report

(Reuters) – Traders of futures tied to the Federal Reserves policy rate trimmed bets on Friday that the U.S. central bank will raise interest rates as sharply or as high as earlier thought, after a government report showed the U.S. unemployment rate rose to 3.6% last month and wage gains slowed.

Fed funds futures pointed to a quarter-point rate hike as the most likely outcome of the central banks meeting this month after the Labor Department report, from a better-than-even chance of a bigger half-point rate hike seen earlier. Traders also pared expectations for the Fed to ultimately raise rates any higher than 5.5%. The current target range is 4.25%-4.5%.

“This report screams soft landing and looks to be a pretty good one for the Fed,” said Omair Shariff of Inflation Insights.

With wage gains slowing and the unemployment rate ticking up due to more people entering the workforce even as employers added jobs, he said, “in the current environment, this is basically what the Fed is hoping to see.”

(Reporting by Ann Saphir and Michael S. Derby; editing by John Stonestreet and Chizu Nomiyama)