By Ann Saphir
(Reuters) - Traders on Friday trimmed bets the Federal Reserve will cut interest rates after a U.S. government report showed hiring surged unexpectedly last month, but prices of short-term rate futures show they remain convinced the central bank's next move will be a rate cut rather than a hike.
Contracts tied to the Fed's policy rate have priced out any chance of a 2019 Fed rate hike since shortly after Fed Chairman Jerome Powell said on Wednesday the case for rate increases had weakened, and that muted inflation allowed the Fed to be patient on policy.
After a Labor Department report on Friday showed employers added 304,000 jobs in January, traders retreated a bit, slicing the chance they see of a rate cut by year's end to about a one-in-five chance, from as much as a one-in-three chance.
But prices in the futures markets still show traders see no rate hikes ahead.
"The real question will be, what does it mean for the Fed and for markets, which are clearly having some trouble with good economic data to the extent that it feeds into the Fed raising interest rates," said Sameer Samana, senior global market strategist at Wells Fargo (NYSE:WFC) Investment Institute in St. Louis.