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You can find the current article at its original source at https://www.theguardian.com/business/live/2017/sep/20/us-federal-reserve-decision-janet-yellen-markets-uk-retail-business-live
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| Version 19 | Version 20 |
|---|---|
| US Federal Reserve begins unwinding stimulus and leaves interest rates on hold - live! | US Federal Reserve begins unwinding stimulus and leaves interest rates on hold - live! |
| (35 minutes later) | |
| 8.02pm BST | |
| 20:02 | |
| Here’s Tom Stevenson, investment director for personal investing at Fidelity International, on the Fed’s balance sheet reduction plan: | |
| As expected, the Fed has fleshed out its plans for reining in the size of its balance sheet. This has ballooned since the financial crisis on the back of America’s massive quantitative easing stimulus programme. | |
| The balance sheet has expanded to $4.5trn since the financial crisis. The plan is to start reducing it from next month and to progressively accelerate the rate at which bonds are returned to the public market. The Fed hopes that by telegraphing its $1trn to $2trn taper, it can avoid unsettling bond and equity markets. | |
| 8.01pm BST | |
| 20:01 | |
| Yellen reminds the press conference that the Fed has now raised interest rates four times in this cycle, and it still thinks the recovery is on a “strong track”. | |
| 7.59pm BST | |
| 19:59 | |
| Q: The Fed is locked into reducing its balance sheet, and raising interest rates in a gradual fashion. So what will you do if economic conditions don’t turn out as you expect? | |
| Yellen denies that the Fed is ‘locked in’ to a particular path. We are assessing incoming data, and these plans are subject to change. | |
| What won’t change, though, is our commitment to delivering price stability and full employment, she adds. | |
| 7.57pm BST | |
| 19:57 | |
| Yellen says that the Fed could “stop its balance sheet rolloff” in future, if adjusting interest rates is “insufficient” to respond to changes to the economic outlook. | |
| 7.54pm BST | |
| 19:54 | |
| Q: Is the Fed concerned that markets are at, or close to, record highs? | |
| Yellen replies that it’s not easy to see how asset prices will affect the economic outlook, but the Fed is “taking account of asset prices when setting monetary policy”. | |
| Question for Yellen about "buoyant" stock market/other rising asset prices & whether it concerns Fed. Response? To sort of dodge question. | |
| 7.51pm BST | |
| 19:51 | |
| Onto questions, and the first one is a zinger. | |
| Q: Why the Fed is unwinding its balance sheet when core inflation is consistently below target, and the unemployment rate for Black Americans is 8% (much higher than the 4.4% national average). | |
| Yellen replies that it is a “concern” that inflation is below the 2% target. The Fed still believes it will rise, but will adjust policy if needed. | |
| Asked about sacrificing black/minority employment gains for low inflation, Yellen responded with a recitation of everything on Fed's mind | |
| 7.48pm BST | |
| 19:48 | |
| Yellen repeats that the Fed’s balance sheet will be shrunk gradually and predictably. | |
| It will start by cutting its holdings by up to $10bn per month this autumn; a small change designed to help the markets adjust. | |
| This cap will rise to $50bn per month by next autumn. | |
| Janet Yellen says "We do NOT plan on making adjustments to our balance sheet normalization program." pic.twitter.com/WWy9DaCR5a | |
| But....she also flags up that the Fed could adjust its balance sheet in future, if circumstances demanded it. | |
| Updated | |
| at 7.55pm BST | |
| 7.42pm BST | |
| 19:42 | |
| Policy is not on a preset cause, says Yellen - a reminder to the markets that events could yet force the Fed to chance course. | |
| 7.40pm BST | |
| 19:40 | |
| On interest rates, Yellen says the Federal Fund Rate won’t have to rise much further to get back to a ‘neutral stance’. | |
| 7.39pm BST | |
| 19:39 | |
| Yellen warns that US economic growth in the current quarter will be hurt by the recent hurricanes that battered Florida and Texas (as well as the Caribbean). | |
| Inflation will also be pushed higher, temporarily, because gasoline has become pricier. | |
| However, this won’t “materially” affect the long-term path of the economy, she adds. | |
| Yellen emphasis on near-term hit to data from hurricanes seems like pre-emptive indication a few bad data points won't alter rate hike plans | |
| Yellen also expresses sympathy, on behalf of the Fed, for those who have suffered from Irma and Harvey. | |
| Fed's Yellen expresses her condolences to all those Americans who have been affected by the recent hurricanes in Texas and Florida. | |
| 7.36pm BST | |
| 19:36 | |
| Janet Yellen's press conference begins | |
| Over in Washington, Federal Reserve chair Janet Yellen has sat down to face the press and explain today’s decisions. | |
| She starts by predicting that the US economy “will continue to expand over the next few years”, and that the Fed’s accommodative monetary policy stance will help create more jobs. | |
| Yellen adds: | |
| We expect the job market will strengthen somewhat further’ | |
| She says the Fed’s balance sheet reduction plan will be gradual and predictable. | |
| 7.32pm BST | |
| 19:32 | |
| Explainer: What the Fed will do to its balance sheet | |
| What does ‘reducing the Fed’s balance sheet’ mean in practice? | |
| Well... once the financial crisis stuck, the US central bank created more than a trillion of new dollars to buy American government debt, and bonds backed by mortgages. | |
| This chart, from Bloomberg, reminds us how the Fed unleashed three quantitative easing programme in an attempt to prop up growth, fight unemployment and keep inflation higher. | |
| So now, the Fed is planning to cut back, by cutting the amount of assets on its books. | |
| Those QE programmes drove asset prices to record levels, such as bond prices and equities. | |
| Kully Samra, UK managing director of Charles Schwab, warns that markets could wobble once the Fed’s plan gets underway. | |
| Robust fundamental data and solid corporate earnings should allow the bull market to continue, but political, fiscal and monetary uncertainties still present risks. | |
| The Fed’s announcement today to start unwinding the balance sheet has already been priced in by markets, but we continue to believe the Fed’s “quantitative tightening” could be the cause of some heightened volatility, especially as the impact on the real economy remains largely unknown.” | |
| Updated | |
| at 7.51pm BST | |
| 7.24pm BST | 7.24pm BST |
| 19:24 | 19:24 |
| Wall Street has reacted calmly to the news that the Fed will start unwinding its balance sheet in October. | Wall Street has reacted calmly to the news that the Fed will start unwinding its balance sheet in October. |
| The main stock indices have dipped slightly, with the Dow down 0.25% and the S&P 500 losing 0.1%. | The main stock indices have dipped slightly, with the Dow down 0.25% and the S&P 500 losing 0.1%. |
| Cue the sarcasm: | Cue the sarcasm: |
| The S&P is down 5 points. Guess all the bears who said stocks were propped up all this time by QE were right! | The S&P is down 5 points. Guess all the bears who said stocks were propped up all this time by QE were right! |
| 7.21pm BST | 7.21pm BST |
| 19:21 | 19:21 |
| Skimming through the Fed statement, it appears that policymakers are still confident that the US economy is recovering. | Skimming through the Fed statement, it appears that policymakers are still confident that the US economy is recovering. |
| Here’s a flavour: | Here’s a flavour: |
| Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. | Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. |
| Job gains have remained solid in recent months, and the unemployment rate has stayed low. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. | Job gains have remained solid in recent months, and the unemployment rate has stayed low. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. |
| On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined this year and are running below 2 percent. | On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined this year and are running below 2 percent. |
| Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance. | Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance. |
| Fed: touch more hawkish than I'd have expected. | Fed: touch more hawkish than I'd have expected. |
| 7.18pm BST | 7.18pm BST |
| 19:18 | 19:18 |
| The dollar has jumped by 0.4%, reversing its weakness before the Fed’s announcement. | The dollar has jumped by 0.4%, reversing its weakness before the Fed’s announcement. |
| Traders are reacting to the news that the Fed still expects to raise interest rates once more this year, and three times in 2018. | Traders are reacting to the news that the Fed still expects to raise interest rates once more this year, and three times in 2018. |
| Dollar surging: Fed kept rates unchanged and balance sheet runoff starts Oct. Credit Suisse: FOMC Could Upend broad USD negative view #fx pic.twitter.com/nw2UAKm4k2 | Dollar surging: Fed kept rates unchanged and balance sheet runoff starts Oct. Credit Suisse: FOMC Could Upend broad USD negative view #fx pic.twitter.com/nw2UAKm4k2 |
| 7.14pm BST | 7.14pm BST |
| 19:14 | 19:14 |
| In the markets, the yield on short-term US debt has jumped, meaning bond prices have fallen. | In the markets, the yield on short-term US debt has jumped, meaning bond prices have fallen. |
| US 2-year Treasury yield hits more than two-month high after Fed announcement https://t.co/xfVVsynLAw pic.twitter.com/h26rkNEK4m | US 2-year Treasury yield hits more than two-month high after Fed announcement https://t.co/xfVVsynLAw pic.twitter.com/h26rkNEK4m |
| 7.11pm BST | 7.11pm BST |
| 19:11 | 19:11 |
| The Fed also flags up the damage suffered by hurricanes in recent weeks. | The Fed also flags up the damage suffered by hurricanes in recent weeks. |
| It predicts inflation could push higher in the short term, but hopes the US economy will bounce back: | It predicts inflation could push higher in the short term, but hopes the US economy will bounce back: |
| Today’s statement says: | Today’s statement says: |
| Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship. | Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship. |
| Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. | Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. |
| Fed: Hurricanes unlikely to alter economy's course medium term. | Fed: Hurricanes unlikely to alter economy's course medium term. |
| Updated | Updated |
| at 7.12pm BST | at 7.12pm BST |
| 7.10pm BST | 7.10pm BST |
| 19:10 | 19:10 |
| Importantly, some Fed committee members have become more dovish about the path of interest rates in 2018. | Importantly, some Fed committee members have become more dovish about the path of interest rates in 2018. |
| The new Dot Plot (in yellow) shows that two hawkish policymakers have pulled their horns in (one was expecting rates to hit 3% next year!) | The new Dot Plot (in yellow) shows that two hawkish policymakers have pulled their horns in (one was expecting rates to hit 3% next year!) |
| There’s also very little consensus about where rates will be in 2019.... | There’s also very little consensus about where rates will be in 2019.... |
| Changes in the DOTS: {DOTS | Changes in the DOTS: {DOTS |
| 7.02pm BST | 7.02pm BST |
| 19:02 | 19:02 |
| Fed to start shrinking its balance sheet in October | Fed to start shrinking its balance sheet in October |
| Boom! The Fed says it will start shrinking its balance sheet in October. | Boom! The Fed says it will start shrinking its balance sheet in October. |
| That means it will beginning the task of unwinding the stimulus it injected into the US economy once the financial crisis began. | That means it will beginning the task of unwinding the stimulus it injected into the US economy once the financial crisis began. |
| Updated | Updated |
| at 7.03pm BST | at 7.03pm BST |