Traders see it as almost “inevitable” the US Federal Reserve will raise its benchmark interest rate on Wednesday after strong jobs growth.
Markets which track investors’ expectations for the key rate give a near 100% likelihood of a rise.
It would be only the third time in a decade that the US central bank has increased rates.
Analysts said the odds strengthened on Friday after figures showed better than expected jobs growth in February.
According to the Bureau of Labor Statistics, US employers added 235,000 new jobs, exceeding economists’ forecasts.
‘Seals the deal’
Federal Reserve chair Janet Yellen said last week that the central bank could raise rates in March if employment and inflation figures met their expectations.
The Fed increased rates, which have been at near-historic lows since the financial crisis, to a range of 0.5% to 0.75% in December.
The futures market for the key Federal fund interest rate puts the likelihood of a rate rise at between 98% and 100%, according to Bloomberg data.
This level of probability was “about as inevitable as it gets,” said Kathleen Brooks, research director at City Index.
“They basically have to hike rates next week because the market expects them to,” she added.
Paul Ashworth, chief US economist at Capital Economics, said the number of jobs added in February would “erase any lingering doubts that the Fed might not hike interest rates next week”.
The US labour market is “where the Fed wants it to be”, which “seals the deal for a rate hike next week”, said Gus Faucher, deputy chief economist at PNC.
Employers in the US have added more than two million jobs in the past 12 months, and the latest figures show that labour market strength continued into February.
For the Federal Reserve, one of the key issues is that the continued jobs growth is likely in time to contribute to higher wages and price rises.
Already financial markets were expecting that the Fed will try to pre-empt a sharp future rise in inflation by raising interest rates at a policy making meeting next week.
Friday’s figures reinforce that expectation.
Traders also see better than even odds of two further rate rises this year, based on the price of Fed funds futures contracts traded at CME Group’s Chicago Board of Trade.
The Fed’s next meeting will conclude on Wednesday 15 March.
Trump’s economic plans
The Trump administration also welcomed the jobs figures, which covered President Trump’s first full month in office.
Sean Spicer, the president’s press secretary, tweeted that the figures were “great news for American workers… in first report for [President] Trump”.
The growth in new US jobs has been gathering pace in recent months, and there were other signs that US businesses continued to gain strength in February.
The unemployment rate edged lower to 4.7%, with construction adding the most new jobs in nearly a decade.
Average hourly wages increased by 6 cents from January to $26.09 and were up 2.8% from a year earlier. The labour force participation rate also edged up to 63%, the highest rate since March 2016.
Mr Trump has promised to create 25 million jobs over 10 years to become “the greatest jobs president … ever”.