CHICAGO, June 7: Confidence that the Federal Reserve will start raising interest rates in the fourth quarter has been shaken by bleak news on the jobs front and record energy prices that threaten to hobble the US economy.

Short-term interest rate futures, which measure market sentiment toward Fed policy moves, reversed course on Friday on a triple-threat from a jump in the jobless rate, crude oil’s historic jump and a 3 per cent slide in US share prices.

Dealers slashed the implied chances that the Federal Open Market Committee will raise benchmark lending rates as soon as October to less than 50 per cent from more than 80 per cent earlier on Friday.

Fed officials have been jawboning for weeks about a need to tackle inflation once the economy stabilises by removing monetary policy accommodation in a timely manner.

Central bankers have become disturbed by a recent widening in market-based inflation expectations, which raise the prospect of a damaging, 1970s-style inflation spiral.

But Friday’s helping of bad news, coupled with ongoing jitters about the health of the US financial sector, suggested the economy might not be strong enough to cope with higher rates for some time.“A negative feedback loop of rising financial stress on households and sluggish economic growth has begun to emerge,” said Robert DiClemente, economist at Citigroup in New York.

For now, futures suggest the FOMC will keep the federal funds rate at 2 per cent at its June 24-25 meeting, and most likely in August and September as well.

Despite frequent comments by policy-makers that rates have been lowered enough, especially given worries about high inflation, some analysts feel that the Fed could still be cornered into yet another ease.

“We stick with our expectations for at least one more rate cut of 25 basis points from the Fed to 1.75 per cent, with chances for a 1.5 per cent print at 40 per cent,” said Ashraf Laidi, chief FX strategist at trading firm CMC Markets US in New York.

Even so, the new St. Louis Fed president, Alan Bullard, on Friday said the Fed will have to focus on inflation in the second half of this year and that monetary policy is now “appropriately calibrated.”—Reuters