Fed policymakers are expected to keep interest rates at 5.25%-5.50% next week and not start cutting rates by 25 basis points in September, as the latest data showed that the U.S. economy regained momentum last quarter.

Before the data, traders saw about a 9% chance of a Fed rate cut next week, but that dropped to below 7% after a government report showed the economy grew 2.8% last quarter, faster than expected and twice as fast as the first quarter of the year.

The reacceleration of the economy "should help ease concerns about whether the expansion can continue and quell rumors that the Fed needs to cut rates in July," wrote Ryan Sweet, an analyst at Oxford Economics. Traders continue to expect the Fed to cut rates by 25 basis points in September, November and December, while they also reduced bets that the Fed could cut rates further.

Previously, traders saw about a 21% chance that the Fed would cut rates by more than 25 basis points before its September meeting, which has now fallen to about 15%.