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US Federal Reserve raises interest rates - live updates
Janet Yellen holds press conference after US Federal Reserve raises interest rates - live updates
(35 minutes later)
6.19pm GMT
7.00pm GMT
18:19
19:00
Fed: inflation target is symmetric
Yellen is asked about the recent strong stock market rally.
Significantly, the Federal Reserve has also stated that its inflation target is symmetric.
She says that the higher level of equities has helped to ease financial conditions.
In layman’s terms, that means it is prepared to tolerate prices rising faster than its 2% target. That’s a dovish signal (which explains why the dollar has fallen)
Yellen: Financial conditions on balance have eased, that's partly driven by stock market. That is a factor that affects outlook.
#FOMC hikes #rates 25bp, statement mostly as expected EXCEPT on inflation where they seem to start to contemplate inflation overshoot
6.57pm GMT
6.16pm GMT
18:57
18:16
Frances Donald of Manulife Asset Management believes Yellen will be pleased to see the dollar falling.
Dow jumps, but dollar falls
Janet Yellen wins today if she manages to tighten rates and USD ends the day lower. There is no better outcome for the Fed than that.
Wall Street likes what it sees! The Dow Jones index has now jumped by 86 points to 20,929, a gain of 0.4%.
But John Kicklighter of DailyFX isn’t convinced that the language changes in today’s statement don’t really matter.
The S&P 500, and the tech-focused Nasdaq index, are both up.
Steve Liesman went there. He asked why they left out the word 'only' in a segment or the statement
The dollar, though, is sinking. That’s because the Fed hasn’t taken a hawkish line and predicted more rate hikes in 2017 or 2018.
...and she responds coyly, suggesting it is a trifle change of language. Yellen is fooling no one. They clearly chose every word carefully
10yr US real yields and the BBG dollar index.falling in unison. Might be time for a beer pic.twitter.com/qSOGltLwGZ
6.55pm GMT
6.14pm GMT
18:55
18:14
Q: What do you think the neutral real rate of borrowing costs is?
Why the Fed raised interest rates
Yellen says that lower productivity, and population increases, means that the neutral rate is lower than in the past.
Today’s statement shows that the Fed still believes that the US economy continues to recover, and can cope with higher borrowing costs.
Yellen: neutral real rate about 1% or a bit lower.
It says that ‘fixed investment’ by US firms appears to have firmed; that indicates that companies are confident about growth prospects.
6.51pm GMT
It also expects inflation to stabilise around its 2% target in the medium term - a sign that it doesn’t intent to hike rates aggressively.
18:51
The Fed also says that the near-term risks to the US economy are ‘roughly balanced’.
Q: Have you met with new Treasury secretary Steven Mnuchin since he was appointed? And have you met Donald Trump?
Here’s a key section of the report:
Yellen says she has met Mnuchin a couple of times, and fully expects to have a strong relationship with him.
Information received since the Federal Open Market Committee met in February indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace.
She’s also had a “very brief meeting” with the president, and appreciated that opportunity.
Job gains remained solid and the unemployment rate was little changed in recent months. Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat.
6.08pm GMT
18:08
Here’s the new Fed dot plot, showing where policymakers expect interest rates to be over the next few years.
There are a few minor moves, but the bottom line is that the Fed still expects three rate hikes this year, and in 2018.
Dot Plot March 2017 vs. December 2016: pic.twitter.com/76hoI1H5cl
6.06pm GMT
18:06
The Federal Reserve still expects to raise interest rates three times this year (including today’s move).
Mean of FOMC's 2017 dots rose to 3.1 hikes from 3.0
6.04pm GMT
18:04
The decision to raise US interest rates is not unanimous, though!
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, argued against a rate hike.
He’s been arguing that there isn’t enough pressure on wages to justify a hike.
The other nine policymakers outvoted Kashkari, though, and decided a rate hike was needed.
*FED RAISES BENCHMARK RATE TO 0.75%-1%; KASHKARI DISSENTS
6.00pm GMT
18:00
FEDERAL RESERVE DECISION
Breaking! The Federal Reserve has voted to raise US interest rates at today’s meeting.
The Fed has responded to the latest solid economic data by hiking borrowing costs by a quarter of one percent.
That moves the Federal Funds rate up to 0.75% to 1.0% (up from 0.5% to 0.75%)
It’s the first interest rate rise in 2017 (the last one was in December), and only the third since the financial crisis struck.
This won’t shock Wall Street, as most economists had predicted a hike today.
But everyone is now racing to read the statement, and to prepare for Janet Yellen’s press conference in 30 minutes time.
More to follow!
5.58pm GMT
17:58
Not everyone is excited, though....
Waiting on the fed like pic.twitter.com/EWdZwgtptt
5.50pm GMT
17:50
The excitement is building....
10 MINUTES TIL FED
5.43pm GMT
17:43
Fed decision: What to watch for
This was the scene on Wall Street a little while ago, as traders got ready for the Fed’s decision on interest rates:
With a rate hike widely expected, the real questions are:
Kit Juckes of French bank Societe Generale says investors will look closely at the ‘dot plot’ produced by the Fed, showing how policymakers expect borrowing costs to rise.
The Fed is a pussy-cat that would like to change its spots into something more like a leopard’s. In practical terms, that means that this evening’s FOMC announcement (6pm GMT, with a press conference half an hour later) is all about the Fed’s projections rather than whether they raise rates or not.
Anything other than a 25bp rate hike would be a huge surprise to the market
Discounting that possibility on the grounds that the Fed is so (too) obsessed with managing market expectations ahead of policy moves, what we’ll watch are the ‘dots’ showing FOMC’s projections of where Fed Funds might go. Market pricing of Fed Funds through 2017-19 is at the bottom end of what the Fed currently projects.
Our US economists think that the 2017/18 dots probably won’t move but beyond that, an upward adjustment is possible to send a signal to the market that the FOMC is serious about normalising policy.
Updated
Updated
at 5.52pm GMT
at 6.52pm GMT
5.28pm GMT
6.49pm GMT
17:28
18:49
While we wait for the Fed rate decision, this piece in the FT (£) entitled Brexit means the end of single market access for London is an interesting read. Christian Noyer, the former chairman of the Bank for International Settlements and former governor of the Banque de France, writes:
Q: Has the Federal Reserve considered the implications of Donald Trump’s fiscal stimulus plan?
Will London’s financial institutions lose access to the single market after the UK leaves the EU? When one looks at the legal framework, underlying logic and, in particular, precedents from the European Economic Area, the answer is yes. “Brexit means Brexit.”
Yellen says they’ve not discussed it, as there is “great uncertainty” over the character and size of potential policy changes.
There are three conditions for full access to the EU single market and “passporting rights” for financial institutions. First, implementation of EU regulations under the control of the European Court of Justice; second, payment of a sizeable contribution to the EU budget; and third, the “four freedoms”. A country refusing to meet these conditions cannot be part of the EU single market because it rejects the market’s logic. It’s as simple as that.
Yellen says Fed not planning for @realDonaldTrump policies...
Some observers, however, believe they can secure entry through the back door after exiting through the front. It is called “free access on the basis of regulatory equivalence”. It is worth noting that, if this were truly possible, the foundations of the single market would be undermined, a key element of EU cohesion would be destroyed and the entire EEA concept would probably die.
Q: Why did you remove the word ‘only’ before the phrase ‘gradual increases in interest rates” in today’s statement?
5.21pm GMT
It’s a relatively small change, Yellen says. Our forecasts for the economy and the federal funds rate are virtually unchanged.
17:21
6.45pm GMT
European stock markets have now closed.
18:45
The FTSE 100 in London rose 0.15% to 7368.64
Q: You warned that if the Fed were to waiting too long to raise rates, it could be forced into a “rapid” increase in rates. What would this look like?
The Dax in Frankfurt rose 0.18% to 12,009.87
Yellen says that she can’t really say what a rapid rate of increases would be. But three rate hikes in a year is certainly ‘gradual’.
The CAC in Paris rose 0.23% to 4,985.48
Yellen: "I’m not sure I can tell you what a rapid rate of increase is." Says 3 rate hikes this year would be "gradual."
The Ibex in Madrid rose 0.79% to 9,983.20
6.42pm GMT
The FTSE MiB in Milan rose 1.2% to 19,774.02
18:42
5.17pm GMT
Onto questions.
17:17
Q: What conditions does the Fed want to see before it starts to normalise its balance sheet? (ie, selling some of the assets bought under its stimulus programme since the financial crisis).
Renaultgate? Shares in the French carmaker fell today after a French newspaper report claimed its vehicles were equipped with software allowing them to cheat in pollution tests.
Yellen says the Fed favours using interest rates, rather than balance sheet adjustments, as their primary tool right now.
Libération said it had obtained an investigative document from the economy ministry, which indicated that two models – the Renault Captur and the Clio IV – spewed emissions more than 300% above the legal limit in real-life conditions.
She points out that the Fed could use its balance sheet if interest rates were cut back down to their lowest possible levels (the zero lower bound).
Renault described the article as “unbalanced” but declined to comment further, saying it had no access to the confidential investigation.
And the Fed will want to be confident in the strength of the economy before starting to shrink the balance sheet.
As a consequence, Renault cannot confirm the veracity, completeness and reliability of the information published in the said article. Renault will prove its compliance with the regulations and reserves its explanations for the judges in charge of investigating this case.
6.39pm GMT
The company said its vehicles had met regulatory standards and stressed that “they are not equipped with cheating software affecting anti-pollution systems”.
18:39
French prosecutors said in January that they would look into possible cheating by Renault, after independent experts found high levels of diesel emissions at several carmakers, including Renault.
The economic outlook is ‘highly uncertain’, Yellen continues, adding that policy is not on a preset course.
Renault’s premises were also raided, in the aftermath of the Volkswagen emissions scandal in September 2015. The German carmaker admitted to installing software in its vehicles to cheat US diesel emissions tests. Renault recalled 15,000 cars last year over excessive levels of harmful gases, but the company insisted there was no evidence of deliberate wrongdoing.
Fed’s Yellen: Economic Outlook Is Highly Uncertain
Updated
6.38pm GMT
at 5.18pm GMT
18:38
4.24pm GMT
Monetary policy is still accommodative, after today’s rate rises, Yellen says.
16:24
She warns that if the Fed were to wait too long before normalising policy, it could be forced to raise borrowing costs more rapidly “sometime down the road”, causing disruptions in the financial markets.
In London, gains on the FTSE 100 are led by oil and mining firms, keeping the index close to its recent all-time high. But this could change after the Fed decision.
And it’s likely that the ‘neutral’ level of interest rates is lower than the historical average.
Chris Beauchamp, chief market analyst at online trading platform IG, said:
6.35pm GMT
Indeed, European and UK equities have been more resilient of late than their US counterparts, with some of this down to weaker domestic currencies. The risk for the likes of the FTSE and the Dax is therefore that a less hawkish Fed tonight could spike a rally for sterling and the euro, causing some of the most recent outperformance to reverse.
18:35
Overall today has felt like a market that is in dire need of a catalyst, so traders will be hoping that Janet Yellen provides just that.
Yellen sounds confident about the labor market, saying Fed policymakers “expect that job conditions with strengthen somewhat further.”
4.12pm GMT
6.34pm GMT
16:12
18:34
On currency markets, the dollar slipped after the disappointing retail sales data – despite expectations of a rate hike from the Fed later today. There are question marks over the rate outlook further out, given the uncertainty surrounding Trump’s fiscal policy. The dollar index drifted 0.2% lower.
Yellen says that today’s interest rate hike is in response to the ongoing recovery in the US economy, and improved conditions in the labor market.
The Fed’s “dot plots” – its interest rate projections – currently suggest three rate hikes this year but there is concern that the Fed’s language may sound more dovish than before.
Our decision to make another gradual reduction...reflects the economy’s continued progress toward its employment/price stability objectives, the Fed chair explains.
The pound earlier hit its highest level this week, of $1.2258, recovering from an eight-week low yesterday caused by fears of a drawn-out Brexit. Sterling is now trading at $1.2218, up 0.5%.
The euro is also up against the dollar, trading 0.25% higher at $1.0628. Concerns about the outcome of the Dutch parliamentary elections today were offset by market speculation that the European Central Bank may soon unwind its stimulus programme.
Updated
at 4.18pm GMT
3.53pm GMT
15:53
Stock markets up ahead of Fed decision
Markets are calm ahead of the eagerly awaited Fed decision, with European stock markets holding on to their gains.
FTSE 100 in London up 0.2%
Dax in Frankfurt up 0.2%
CAC in Paris up 0.25%
Ibex in Madrid up 0.9%
FTSE MiB in Milan up 1%
On Wall Street, the Dow Jones is 0.2% ahead while the S&P 500 has gained 0.3% and the Nasdaq is flat.
Brent crude has gained 1.3%, to $51.61 a barrel, after data showed US crude stocks fell last week following nine consecutive increases.
The International Energy Agency said global inventories rose in January for the first time despite the Opec output cuts. But if the oil cartel sticks to its production curbs, the IEA predicted a deficit of 500,000 barrels a day for the first half of this year.
3.37pm GMT
15:37
Also, delays in processing tax refunds by the US government weighed on consumers’ ability to spend in February. Compared with February last year, retail sales were up 5.7%.
