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US Federal Reserve interest rate decision – business live
Stock market falls sharply after Federal Reserve raises interest rates – business live
(35 minutes later)
The Fed chair has arrived, to explain why US interest rates are being raised for the fourth time this year - and the 9th time since the financial crisis ended.
Jerome Powell says the US economy has been performing well over the last three months, with jobs being created, wages up, and inflation stable.
But there are also signs of softening, as the US economy faces new challenges such as slower growth in some other countries, Powell continues....
You can watch the press conference live, here.
A nice summary:
A "somewhat" dovish rate hike by the @FederalReserve : The 25 bps increase in interest rates is accompanied byone less signaled hike for next year (from a total of 3 to 2),a 20 bps cut in the neutral rate estimate,lower GDP projectionBUT still a path that overshoots neutral
The S&P 500 index - a broader measure of US company values than the Dow - is now in the red, down 0.4% at 2,536 points.
That underlines that the Fed has disappointed Wall Street by not being more dovish.
You can read the Fed’s statement online, here. We’ll hear from Jerome Powell shortly....
Reaction to the US interest rate hike is pouring in.
Here’s Nancy Curtin, chief investment officer at Close Brothers Asset Management:
“Despite Trump’s misgivings the Fed was not going to be deterred from raising interest rates. In light of low unemployment and a robust economy, it was clear the central bank was led by the data in front of them.
The US economy has seen some momentum slow as the positive impact of fiscal policy wanes, which will affect future policy. The Fed will be wary that upwards pressure on prices is growing from a tight labour market, higher wages and Trump’s trade war. As we move into 2019, the Fed will take a flexible pragmatic approach, dependent on the economic data.”
Here’s Kully Samra, Vice President of Charles Schwab:
“It seems like the new year could equal new monetary policy for Mr Powell.....
We expect that the Fed will likely continue to raise short-term interest rates in 2019, but at a slower pace than in the past with one to two hikes, and may pause or end rate hikes by mid-2019, if the yield curve flattens and inflation remains tame. We also expect the dollar to stay firm until there is evidence that the Fed is done tightening and global growth picks up. Market volatility is a theme that is likely to persist in 2019. After a decade of unprecedented liquidity provision, liquidity is draining out of the system as the Fed and other central banks move toward tighter monetary policy.
Here’s more reaction:
In a nod to financial market volatility and concerns of slowing global economic growth, the Fed inserted a comment into their statement about monitoring ‘global economic and financial developments’ and assessing ‘their implications for economic growth
No Powell put on US equities as yet: @federalreserve raised rates to 2.25%-2.5% and still expects 'some gradual increases ' although median FOMC expectation now lower, with 2 rate rises in 2019 and one more in 2020, to 3.25%-3.5%.
Fed raises interest rates but lowers forecasts for GDP growth, inflation, median neutral rate, and expected hikes next year (two down from three). A dovish hike, but not dovish enough for markets?
The Federal Reserve has also added a line about monitoring “global economic and financial conditions” to its statement.
That suggests Fed governors are more worried about the state of the world economy, and the recent volatility in the markets.
Here's what changed in the new @federalreserve statement https://t.co/m4D0LXCDWV pic.twitter.com/7ZsEhK2mY7
The US stock market is falling sharply, losing almost all of its earlier gains.
The Dow, which was up almost 300 points, is now only 39 points higher.
That suggests investors had expected the Fed to be more dovish. Some in the market will be disappointed that policymakers still expect two rate hikes next year.
Dow sharply cuts gains after Fed hikes rates, cuts 2019 projection to 2 increases https://t.co/SPz0hnyZMd pic.twitter.com/7VlHk808fT
Nasdaq turns lower after sharply dropping on Fed decision https://t.co/SPz0hnyZMd pic.twitter.com/KsQiPTO3IR
The Fed is justifying its rate hike, by pointing out that the US economy looks robust.
It says:
Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate.
Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year
Significantly, the Fed has also change the language in its statement.
It now only expects “some” further interest rate rises in future.
The Fed changed the statement to add in the word "some" to its key phrase "further gradual rate hikes" - adding in the word gives the Fed more room to maneuver lower.
The Fed has lowered its forecast for interest rate hikes in 2019.
Policymakers now only expect two rate rises next year, down from three previously.
Dot Plot (Dec. vs Sep.) {DOTS} pic.twitter.com/z7pUOp8KN2
NEWSFLASH: The US Federal Reserve has voted to raise interest rates, despite pressure from Donald Trump to leave them on hold today. The FOMC has decided to hike benchmark rates to 2.25%-2.5%, as most investors expected.
More to follow!
Brace for impact@federalreserve
Brace for impact@federalreserve
With just a few minutes to go, the Dow is up 1.2% or 285 points at 23,960.....
Stocks, bonds and the dollar could all be volatile today, when the Fed decision hits the wires.
John Hardy of Saxo Bank says the stakes are high for chairman Powell and colleagues...
White-knuckle equity market declines, a hedge fund legend and President Trump are all begging Fed chair Jay Powell to cease and desist with further rate tightening ahead of today’s pivotal FOMC.
Will he pause or plough ahead?
We find out in just 10 minutes....
The Fed may well deliver a ‘dovish hike’ today -- raising borrowing costs, while sounding less optimistic that rates will keep rising.
Fiona Cincotta of City Index explains:
We are expecting a dovish hike from the Fed, with the well-used phrase “gradual further hikes” to be dropped from the statement. Furthermore, we expect the Fed to trim is forecast of further hikes. The Fed will have to strike a balance between addressing the current strength in the economy (GDP 3.5% yoy Q3) and taking onboard signs of a slowing global economy.
Additionally, they will need to do this in such a way that it doesn’t alarm financial markets. The fact that US equity indices are moving convincingly higher again today shows that the traders are expecting the Fed’s message to soothe volatile markets.
It’s nearly time for one of the final economic events of 2018 -- the conclusions of the December meeting of the US Federal Reserve.
Despite recent market turbulence, most financial experts expect the Fed to raise US interest rates today, by a quarter of one percent.
That would lift the headline cost of borrowing up to 2.25%-2.5%, the highest since early 2008. It would also be the 9th interest rate increase since the Fed started normalising policy in 2016.
But that’s not the only thing to watch out for. The Fed will release new economic predictions, which may show less optimism about growth prospects.
That will be accompanied by a new dot plot, showing where policymakers expect interest rate to be over the next couple of years.
Those dots will be closely scrutinised, to see if the Fed is signalling a pause in its hiking cycle.
If it doesn’t, we can expect Donald Trump to be vocal in his criticism of the Fed. The president has already urged chairman Jerome Powell and colleagues not to hike, meaning the pressure is on tonight...
European stock markets have closed higher tonight.
The FTSE 100 gained 64 points, or almost 1%, to 6,765, recovering from its lowest close in two years on Tuesday.
GlaxoSmithKline led the rally, ending the session almost 4% higher after announcing its consumer healthcare tie-up with Pfizer.
Tim Gamble, Global Head of Pharma Consulting at the Economist Intelligence Unit, says:
What this deal means is a concerted pivot towards innovation and decoupling of the consumer healthcare business. The hook up with 23andMe, appointment of Hal Barron to R&D gives insight into the innovation strategy pursued by Chief Executive Emma Walmsey.
This places greater strain on the Pharma division - but it’s external regulatory constraints that may yet place the drag on Walmsey’s ambitions.”
GSK plans break-up after £10bn Pfizer deal
Italy was the stand-out performer today, gaining 1.6% after reaching a compromise with the European commission over its 2019 budget.
Italy avoids EU sanctions after reaching 2019 budget agreement
The German DAX gained 0.4%, while France’s CAC rose by 0.6%.
With just over an hour to go until the US interest rate decision, stocks are up on Wall Street too.
The Dow Jones industrial average is up 275 points at 23,950, a gain of 1.1%.
But that could unravel if the Fed is more hawkish than expected tonight....
Back in London, cab hire company Uber has lost another legal attempt to prevent its UK drivers being classed as workers, rater than self-employed.
The Court of Appeal has has upheld an earlier ruling, in 2016, that drivers were effectively employed by Uber, and thus entitled to holiday pay and the minimum wage.
TUC General Secretary Frances O’Grady says it’s an important decision:
“No company is above the law. Uber must play by the rules and treat its staff properly.
“Today’s ruling should be a warning to other gig economy employers. If you play fast and loose with workers’ rights, unions will expose you and hold you to account.
Jonathan Chamberlain, partner at law firm Gowling WLG, says other companies should take note:
Yet another court confirms that the more a brand seeks to control the activities of the people that deliver that brand’s services to the public, the less likely those people are to be self-employed.
The law will probably always remain uncertain in this area, despite the governments promise of reform, but the direction of travel is clear.
I expect the Supreme Court to uphold this judgement but we shall see.”
Wall Street is open, but traders are keeping their powder dry, ahead of the US interest rate decision....
U.S. stocks open largely unchanged ahead of today's Fed decision https://t.co/tJEO0jbC02 pic.twitter.com/Pg8jGyvmoX
A quick recap.
UK inflation has fallen to its lowest level in 20 months. Consumer prices rose by 2.3% in the year to November, thanks to cheaper petrol and clothes.
Economists believe that inflation will keep slowing in 2019, helping to keep real wages in positive territory.
UK house price inflation has also slowed, to its lowest level in over five years. Price in London fell by 1.7%, as Brexit anxiety weighs on demand.
The Italian stock market is surging after Rome and the EU reached agreement over its budget plans for next year.
Investors are nervously awaiting the Federal Reserve’s interest rate decision, at 7pm GMT. The Fed is likely to raise borrowing costs, but could also lower its forecasts for future rate hikes.
Craig Erlam of trading firm OANDA says the Fed could surprise the markets by holding borrowing costs -- something which president Trump has been demanding for months.
A dovish hike is widely expected today and increases next year reduced to one or two, although I wonder whether they may hold off and surprise the markets. I may not agree with Trump’s constant Fed bashing but he may have a point on this occasion. With the global economy facing lower growth in 2019, including the US, inflation in check and US stocks in correction territory, it may not be the best time to be raising rates.
I don’t think anyone would blame the Fed for taking a break this month and lining up two or three next year, depending on how the economy performs. It may even provide comfort for investors and be the catalyst for a late Santa surge, bringing the year to an end on a more positive not. Of course, this will then naturally attract criticism that the central bank is bowing to pressure from the White House but being independent doesn’t always mean going against the wishes of Trump.
