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| Stocks rise but dollar slides after Federal Reserve raises US interest rates - as it happened | |
| (35 minutes later) | |
| 8.42pm GMT | |
| 20:42 | |
| Closing post | |
| That’s all for us for tonight. Here’s our news story about the Federal Reserve rate rise: | |
| US Federal Reserve raises interest rates to 1% in bid to hold off inflation | |
| The US Federal Reserve has sought to head off rising inflation with a third interest rate rise since the 2008 financial crash and the second in three months, taking the base rate from 0.75% to 1%. | |
| The central bank set aside concerns about the impact of higher interest rates on consumer spending to confirm analyst projections that it is prepared to increase rates several times this year to keep a lid on inflation as it rises above its 2% target level. | |
| The Fed’s chair, Janet Yellen, said a wide range of indicators showed the US economy was in rude health, allowing its interest rate setting committee to push rates back towards historically normal levels. Policymakers voted nine to one to raise rates. | |
| Speaking after the decision, Yellen said she had met Donald Trump’s treasury secretary, Steven Mnuchin, “a couple of times” but had only been “introduced” to the president himself. | |
| “I fully expect to have a strong relationship with secretary Mnuchin,” she said. “We had good discussions about the economy, about regulatory objectives, the work of the FSOC [Financial Stability Oversight Council] global economic developments, and I look forward to continuing to work with him.” She said she had had a very brief meeting with Trump “and appreciated that as well”..... | |
| Here’s the full story: | |
| Goodnight, and thanks for reading and commenting. GW | |
| 8.39pm GMT | |
| 20:39 | |
| Caution was the order of the day as the Fed took another step towards normalising monetary policy. | |
| So says our economics editor Larry Elliott, who writes: | |
| The key messages from Janet Yellen on Wednesday were that rates will continue to rise but at a cautious pace. She stressed that the central bank expected the economy to grow at a rate that would warrant gradual increases in interest rates. That will be taken as a hint that there will be two more rises during the course of 2017. | |
| The Fed has now raised interest rates three times in the past 15 months. Clearly, the period of ultra-low borrowing costs is at an end. The so-called normalisation of rates is under way. | |
| But it is also obvious that the Fed sees the new normal as being quite different to the old normal. In the mid-2000s, Alan Greenspan’s Fed raised interest rates 17 times in gradual quarter-point jumps until they topped 5%. This time, the Fed sees rates peaking at a much lower level – about 3% – and as things stand they won’t get there until 2019. | |
| 8.27pm GMT | |
| 20:27 | |
| Fed rate hike: What the experts say | |
| Lena Komileva of G+ Economics says the Federal Reserve has achieved a ‘dovish tightening’ of monetary policy with today’s rate rise. | |
| Having test-driven a more hawkish communication strategy in the markets in the run-up to this month’s rate hike, the Fed’s unchanged gradualist stance and Chair Yellen’s measured tone about the Fed’s pursuit of a neutral policy stance have calmed investor nerves. | |
| The Fed’s hand is clearly guided by greater confidence in guiding the economy towards its dual inflation and full employment mandate, rather than a desire to start a bonfire in bond markets. | |
| The Fed has only made modest changes to its forecasts today, points out Chris Weston of IG: | |
| We have seen a slight upgrade to its view on business investment, which seems fair and while the Fed see inflation “moving” to target they stipulated that the committee will carefully monitor actual inflation developments relative to its “symmetric inflation goal”. | |
| One could argue this seems even a touch dovish, as it effectively signals that the Fed feel there are risks of inflation moving above its target of 2%. They are indirectly urging market participants to focus far more heavily on core inflation or PCE, given the volatility and unpredictability of energy and food prices. | |
| Capital Economics say: | |
| As everyone expected following the recent blitz by officials to prepare the markets, the Fed raised the fed funds target by another 25bp today, to between 0.75% and 1.00%, but officials left their interest rate projections largely unchanged. As a result, this hike won’t prompt markets to revise up expectations of how fast monetary policy will be tightened over the next few years. | |
| Manuel Ortiz-Olave, Market Analyst at Monex Europe, is struck by the fact that today’s vote wasn’t unanimous: | |
| “While the Fed hiked interest rates, Kashkari voted against, showing not all FOMC members agree it’s the right time to normalise monetary policy. This contradicts the recent bullish market consensus. | |
| “Markets are reassessing the future path of interest rate hikes, which is putting downward pressure on the dollar. The market had started to price in a total of four hikes this year, assuming the Fed was ready to begin an aggressive path of monetary tightening, but that is clearly no longer the case. | |
| Anna Stupnytska, Global Economist at Fidelity International, believes the Fed may miss its target of three hikes in 2017: | |
| “In all, the Fed looks unlikely to ‘take away the punchbowl’ from global growth any time soon. Our base case is only one more hike this year. This is because we are likely reaching a cyclical peak soon, and the likelihood of a China slowdown weighing on global inflation, markets and growth is fairly high.” | |
| 8.17pm GMT | |
| 20:17 | |
| The US dollar has suffered its biggest one-day drop since January. | |
| That underlines that the Federal Reserve was less hawkish than some investors expected today. | |
| 8.11pm GMT | |
| 20:11 | |
| Wall Street closes higher | |
| DING DING: The closing bell has rung on Wall Street, with the main indices all up after the Fed rate decision. | |
| Energy stocks led the rally, while financial stocks dipped a little | |
| 8.05pm GMT | 8.05pm GMT |
| 20:05 | 20:05 |
| Shares may be up today, but Goldman Sachs is worried that the rally may be over. | Shares may be up today, but Goldman Sachs is worried that the rally may be over. |
| Earlier today the bank’s strategists lowered their three-month outlook for global stocks to neutral, while staying overweight cash and underweight bonds. | Earlier today the bank’s strategists lowered their three-month outlook for global stocks to neutral, while staying overweight cash and underweight bonds. |
| More here: Goldman Turns Cautious on Stocks as Fed Threatens to Upset Calm | More here: Goldman Turns Cautious on Stocks as Fed Threatens to Upset Calm |
| 7.43pm GMT | 7.43pm GMT |
| 19:43 | 19:43 |
| The US stock market is continuing to climb. | The US stock market is continuing to climb. |
| The Dow is now up 127 points, or 0.6%, at 20,966, with less than 20 minutes until the closing bell. | The Dow is now up 127 points, or 0.6%, at 20,966, with less than 20 minutes until the closing bell. |
| Tech investors love Yellen. Nasdaq now only about 3 points from all-time high. Nasdaq 6,000 is less than 100 points away. | Tech investors love Yellen. Nasdaq now only about 3 points from all-time high. Nasdaq 6,000 is less than 100 points away. |
| 7.41pm GMT | 7.41pm GMT |
| 19:41 | 19:41 |
| Dollar slides as Fed remains cautious on rate hikes | Dollar slides as Fed remains cautious on rate hikes |
| The US dollar continued to slide against other major currencies as Janet Yellen held her press conference. | The US dollar continued to slide against other major currencies as Janet Yellen held her press conference. |
| Traders are concluding that the Fed is still only planning to tighten monetary policy gradually - given policymakers expect two more hikes this year, and three in 2018. | Traders are concluding that the Fed is still only planning to tighten monetary policy gradually - given policymakers expect two more hikes this year, and three in 2018. |
| Yellen’s comments about how the Fed is comfortable about allowing inflation to overshoot its target (see here) are also seen as dovish. | Yellen’s comments about how the Fed is comfortable about allowing inflation to overshoot its target (see here) are also seen as dovish. |
| The British pound has jumped by 1.25 cents to $1.228, a two week high. | The British pound has jumped by 1.25 cents to $1.228, a two week high. |
| The dollar is also trading at a two-week low against the Japanese yen, down over 1% today. | The dollar is also trading at a two-week low against the Japanese yen, down over 1% today. |
| And the euro has hit a five week high, gaining around 1 cent to $1.07. | And the euro has hit a five week high, gaining around 1 cent to $1.07. |
| #Euro jumps above $1.07 as Yellen is suddenly the best friend of Trump. Welcomes growth policy which is "not a point of conflict" w/ admin. pic.twitter.com/o08zyV2eEu | #Euro jumps above $1.07 as Yellen is suddenly the best friend of Trump. Welcomes growth policy which is "not a point of conflict" w/ admin. pic.twitter.com/o08zyV2eEu |
| 7.35pm GMT | 7.35pm GMT |
| 19:35 | 19:35 |
| 7.32pm GMT | 7.32pm GMT |
| 19:32 | 19:32 |
| Last question: | Last question: |
| Q: Some people think it’s too early to raise interest rates, because wage growth has been too low. | Q: Some people think it’s too early to raise interest rates, because wage growth has been too low. |
| I would like to see wages increase, and think there is scope for them to increase further, Yellen replies. | I would like to see wages increase, and think there is scope for them to increase further, Yellen replies. |
| But, the Fed’s goal is to achieve maximum employment and low, stable inflation. That’why it hiked the Fed funds rate to 1% today. | But, the Fed’s goal is to achieve maximum employment and low, stable inflation. That’why it hiked the Fed funds rate to 1% today. |
| She also points out that slow productivity growth has been holding down wage rises. | She also points out that slow productivity growth has been holding down wage rises. |
| 7.24pm GMT | 7.24pm GMT |
| 19:24 | 19:24 |
| Asked about regulatory issues, Yellen replies that the Fed has a “relatively light” regulatory agenda at present. | Asked about regulatory issues, Yellen replies that the Fed has a “relatively light” regulatory agenda at present. |
| There’s nothing we need to get out right now, she adds. | There’s nothing we need to get out right now, she adds. |
| Updated | Updated |
| at 7.32pm GMT | at 7.32pm GMT |
| 7.20pm GMT | 7.20pm GMT |
| 19:20 | 19:20 |
| Yellen is asked about the possibility of a border tax. | Yellen is asked about the possibility of a border tax. |
| She says it’s “very uncertain” how the dollar would be affected by such a move. | She says it’s “very uncertain” how the dollar would be affected by such a move. |
| 7.19pm GMT | 7.19pm GMT |
| 19:19 | 19:19 |
| Q: The Fed’s statement today says that your inflation target is symmetric - so how high would you be happy to see inflation rise? | Q: The Fed’s statement today says that your inflation target is symmetric - so how high would you be happy to see inflation rise? |
| Two percent inflation is not a ceiling, it’s a target, Yellen replies. There will be times when it will be above that target. | Two percent inflation is not a ceiling, it’s a target, Yellen replies. There will be times when it will be above that target. |
| If inflation appears to be persistently over target, though, the Fed would have to take action. | If inflation appears to be persistently over target, though, the Fed would have to take action. |
| 7.17pm GMT | 7.17pm GMT |
| 19:17 | 19:17 |
| Yellen: The economy is doing well | Yellen: The economy is doing well |
| Q: What message are you trying to send to US consumers with this interest rate hike? | Q: What message are you trying to send to US consumers with this interest rate hike? |
| Great question, Yellen replies, before declaring: | Great question, Yellen replies, before declaring: |
| The simply message is that the economy is doing well | The simply message is that the economy is doing well |
| She adds that the Fed has confidence in the economy, and its resilience to shocks. The labor market is strengthening - although obviously not everyone is feeling the benefits. | She adds that the Fed has confidence in the economy, and its resilience to shocks. The labor market is strengthening - although obviously not everyone is feeling the benefits. |
| Fed Chair Yellen on what her message to consumers is with today's rate hike: "The economy is doing well." https://t.co/qcDqs8EGGW pic.twitter.com/CAdmNZVDLF | Fed Chair Yellen on what her message to consumers is with today's rate hike: "The economy is doing well." https://t.co/qcDqs8EGGW pic.twitter.com/CAdmNZVDLF |
| 7.13pm GMT | 7.13pm GMT |
| 19:13 | 19:13 |
| Yellen is asked about calls for a new Glass-Steagall Act (to prohibit commercial banks getting involved in risky investment banking). | Yellen is asked about calls for a new Glass-Steagall Act (to prohibit commercial banks getting involved in risky investment banking). |
| “I don’t know what a 21st century Glass-Steagall would look like,” Yellen replies wryly. | “I don’t know what a 21st century Glass-Steagall would look like,” Yellen replies wryly. |
| But she doesn’t think that the repeal of Glass-Steagall (during Bill Clinton’s presidency) was a major factor causing the financial crisis. | But she doesn’t think that the repeal of Glass-Steagall (during Bill Clinton’s presidency) was a major factor causing the financial crisis. |
| Updated | Updated |
| at 7.14pm GMT | at 7.14pm GMT |
| 7.10pm GMT | 7.10pm GMT |
| 19:10 | 19:10 |
| Q: The latest GDP figures weren’t very impressive, unemployment hasn’t changed much, and consumer spending isn’t roaring - so why do you feel forced to raise interest rates today? | Q: The latest GDP figures weren’t very impressive, unemployment hasn’t changed much, and consumer spending isn’t roaring - so why do you feel forced to raise interest rates today? |
| Yellen replies that GDP is quite a ‘noisy’ indicator. Other economic data suggests the economy continues to strengthen. | Yellen replies that GDP is quite a ‘noisy’ indicator. Other economic data suggests the economy continues to strengthen. |
| SPOTTED: GDP as defined by Janet Yellen#Noisy pic.twitter.com/s6ZjYV3yoY | SPOTTED: GDP as defined by Janet Yellen#Noisy pic.twitter.com/s6ZjYV3yoY |
| Q: So what if the economy doesn’t strengthen? Might you raise rates less rapidly than you expect? | Q: So what if the economy doesn’t strengthen? Might you raise rates less rapidly than you expect? |
| Policy isn’t preset, Yellen replies, and it depends on the data*. The Fed will act in a way that encourages further job creation while bringing the real interest rate back towards its neutral level. | Policy isn’t preset, Yellen replies, and it depends on the data*. The Fed will act in a way that encourages further job creation while bringing the real interest rate back towards its neutral level. |
| * - unless it’s ‘noisy’, I guess.... | * - unless it’s ‘noisy’, I guess.... |
| 7.04pm GMT | 7.04pm GMT |
| 19:04 | 19:04 |
| Q: Are you worried about the consequences if Donald Trump’s proposed tax cuts and spending increases aren’t enacted? | Q: Are you worried about the consequences if Donald Trump’s proposed tax cuts and spending increases aren’t enacted? |
| Yellen says there is an obvious, notable shift in sentiment - but there’s no sign that this has translated into higher spending. The Fed is watching closely in case this changes. | Yellen says there is an obvious, notable shift in sentiment - but there’s no sign that this has translated into higher spending. The Fed is watching closely in case this changes. |
| Yellen: "I haven’t seen hard evidence of any change in spending decisions based on expectations about the future.” | Yellen: "I haven’t seen hard evidence of any change in spending decisions based on expectations about the future.” |
| 7.01pm GMT | 7.01pm GMT |
| 19:01 | 19:01 |
| On the global economy, Yellen says the situation has improved. | On the global economy, Yellen says the situation has improved. |
| But there are still uncertainties, which G20 finance ministers and central bankers will discuss at their meeting this weekend. | But there are still uncertainties, which G20 finance ministers and central bankers will discuss at their meeting this weekend. |
| 7.00pm GMT | 7.00pm GMT |
| 19:00 | 19:00 |
| Yellen is asked about the recent strong stock market rally. | Yellen is asked about the recent strong stock market rally. |
| She says that the higher level of equities has helped to ease financial conditions. | She says that the higher level of equities has helped to ease financial conditions. |
| Yellen: Financial conditions on balance have eased, that's partly driven by stock market. That is a factor that affects outlook. | Yellen: Financial conditions on balance have eased, that's partly driven by stock market. That is a factor that affects outlook. |