Investors bet the Fed will raise rates to 5.25% by mid-2023 as strong jobs report fuels views for more aggressive policy

• Swap contracts Friday indicated investors expect the Fed's policy rate to climb to 5.25% by June 2023.
• On Thursday, swaps pointed to an expected peak rate above 5.1% around mid-2023.

Based on Fed swap contracts for June 2023, investors are now expecting the Federal Reserve to raise interest rates to 5.25% following the stronger-than-expected Friday jobs data.

On Thursday, swaps pointed to an expected peak rate above 5.1% around mid-2023, and on Wednesday it had briefly dipped below 5%.

The last time the Fed raised its policy rate to an upper bound of 5.25% was in 2006.

The Labor Department reported nonfarm payrolls increased by 261,000 in October, surpassing the median estimate of 200,000. The unemployment rate climbed to 3.7%, above the expected 3.5%.

Taken together, the report tells the Fed that the labor market remains robust, even in the face of ongoing recession chatter and climbing interest rates.

That paves the way for more aggressive policy from central bankers trying to cool inflation, even as the Fed just made its fourth consecutive 75-basis-point hike on Wednesday.

The Fed's current benchmark rate of 3.75% to 4% is the highest since 2008. On Wednesday, Chairman Jerome Powell said still-elevated inflation means policymakers won't be pausing rate hikes anytime soon and added that the terminal rate may be higher than previously thought.

Meanwhile, Harvard economist Kenneth Rogoff predicted that a 6% interest rate may be what's needed to beat back stubborn inflation, adding that a severe recession is looming.