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Fed leaves US rates on hold but leaves door open for December rise - as it happened Fed leaves US rates on hold but leaves door open for December rise - as it happened
(about 1 month later)
7.08pm GMT7.08pm GMT
19:0819:08
Here’s our story on the Federal Reserve’s decision, by Rupert Neate in New York:Here’s our story on the Federal Reserve’s decision, by Rupert Neate in New York:
The Federal Reserve on Wednesday kept interest rates unchanged at their record low of near-zero, but raised the likelihood of a rate hike in December by dropping previous warnings about the fragility of the global economy.The Federal Reserve on Wednesday kept interest rates unchanged at their record low of near-zero, but raised the likelihood of a rate hike in December by dropping previous warnings about the fragility of the global economy.
Following a two-day meeting in Washington, Fed policymakers voted to leave rates at 0-0.25% – where they have been before the whole of the seven years since the financial crisis.Following a two-day meeting in Washington, Fed policymakers voted to leave rates at 0-0.25% – where they have been before the whole of the seven years since the financial crisis.
However, the bank’s Federal Open Market Committee (FOMC), which sets the rate, significantly raised the prospect of a historic rate rise at its next meeting in December by removing cautious statements about unstable international markets could adversely effect the US economy.However, the bank’s Federal Open Market Committee (FOMC), which sets the rate, significantly raised the prospect of a historic rate rise at its next meeting in December by removing cautious statements about unstable international markets could adversely effect the US economy.
The full report is here:The full report is here:
Related: Federal Reserve keeps interest rates unchanged but hints at December riseRelated: Federal Reserve keeps interest rates unchanged but hints at December rise
On that note, we’ll close up for the evening. Thanks for all your comments, and we’ll be back tomorrow.On that note, we’ll close up for the evening. Thanks for all your comments, and we’ll be back tomorrow.
6.46pm GMT6.46pm GMT
18:4618:46
The Fed’s comments should please the European Central Bank, says Howard Archer of IHS Economics:The Fed’s comments should please the European Central Bank, says Howard Archer of IHS Economics:
The Federal Reserve’s meeting today is the second successive central bank meeting that has delivered a kicking to the euro. The euro fell markedly against the dollar after the ECB indicated last week that further easing is firmly on the table in December including possible interest rate cuts. That saw the euro briefly dip below $1.10 after testing $1.15 a week earlier.The Federal Reserve’s meeting today is the second successive central bank meeting that has delivered a kicking to the euro. The euro fell markedly against the dollar after the ECB indicated last week that further easing is firmly on the table in December including possible interest rate cuts. That saw the euro briefly dip below $1.10 after testing $1.15 a week earlier.
Now the Fed’s indication that the door is open to a US interest rate hike in December has given the euro a renewed downward jolt, which is just what the ECB wants. It has plunged back through $1.10 and is currently testing $1.09Now the Fed’s indication that the door is open to a US interest rate hike in December has given the euro a renewed downward jolt, which is just what the ECB wants. It has plunged back through $1.10 and is currently testing $1.09
The ECB will be delighted as it clearly wants a weaker euro to help lift eurozone inflation and boost growthThe ECB will be delighted as it clearly wants a weaker euro to help lift eurozone inflation and boost growth
6.41pm GMT6.41pm GMT
18:4118:41
Next week’s non-farm payroll numbers and the next set of inflation numbers could be key as to whether the Fed does indeed raise rates in December, says James Knightley of ING Bank:Next week’s non-farm payroll numbers and the next set of inflation numbers could be key as to whether the Fed does indeed raise rates in December, says James Knightley of ING Bank:
The Federal Reserve has played it safe and left monetary policy unchanged. Jeffrey Lacker remains the only committee member voting for an immediate 25bp rate rise.The Federal Reserve has played it safe and left monetary policy unchanged. Jeffrey Lacker remains the only committee member voting for an immediate 25bp rate rise.
The changes to the accompanying statement are small in number, but reasonably significant. On the dovish side, the Fed acknowledges that “the pace of jobs growth has slowed” versus being viewed as “solid” in September. However, the rest of the statement seems to try and put the most positive spin possible. Household and business spending is expanding at “solid rates” whereas previously it was only described as “increasing moderately”. They have also removed three lines about global risks possibly restraining economic activity and depressing inflation. This seems a remarkable turnaround. Furthermore, the statement specifically adds that “in determining whether it will be appropriate to raise the target range at its next meeting...” This suggests that the more hawkish element will be pushing hard for a December move should the data come in reasonably firm.The changes to the accompanying statement are small in number, but reasonably significant. On the dovish side, the Fed acknowledges that “the pace of jobs growth has slowed” versus being viewed as “solid” in September. However, the rest of the statement seems to try and put the most positive spin possible. Household and business spending is expanding at “solid rates” whereas previously it was only described as “increasing moderately”. They have also removed three lines about global risks possibly restraining economic activity and depressing inflation. This seems a remarkable turnaround. Furthermore, the statement specifically adds that “in determining whether it will be appropriate to raise the target range at its next meeting...” This suggests that the more hawkish element will be pushing hard for a December move should the data come in reasonably firm.
Nonetheless we do need to see quite a big improvement in the economic data and a rise in inflation to give us real confidence in our call of a rate rise at the December FOMC meeting. In terms of the upcoming numbers, next week’s labour report will be key, but with the consensus forecasting only a 177,000 rise in payrolls and the unemployment rate remaining at 5.1%, the doves are not going to be swayed much. We would probable need to see 200,000 plus readings in that and the November report and unemployment breaking 5% to realistically shift thinking.Nonetheless we do need to see quite a big improvement in the economic data and a rise in inflation to give us real confidence in our call of a rate rise at the December FOMC meeting. In terms of the upcoming numbers, next week’s labour report will be key, but with the consensus forecasting only a 177,000 rise in payrolls and the unemployment rate remaining at 5.1%, the doves are not going to be swayed much. We would probable need to see 200,000 plus readings in that and the November report and unemployment breaking 5% to realistically shift thinking.
However, there may be more support for the hawks from the CPI reports. Core inflation is rising and there are clear signs of a pick-up in service sector inflation (led by housing and medical care costs). With the negative impulse from energy prices set to shrink markedly in coming months as last year’s plunge in the oil price drops out of the annual comparison, we could see headline CPI quickly reach 1%. Indeed, even if ex-energy CPI just stays at 1.9% year on year and energy prices remain stable, headline CPI will be up to 1.6% year on year in the first quarter of 2016.However, there may be more support for the hawks from the CPI reports. Core inflation is rising and there are clear signs of a pick-up in service sector inflation (led by housing and medical care costs). With the negative impulse from energy prices set to shrink markedly in coming months as last year’s plunge in the oil price drops out of the annual comparison, we could see headline CPI quickly reach 1%. Indeed, even if ex-energy CPI just stays at 1.9% year on year and energy prices remain stable, headline CPI will be up to 1.6% year on year in the first quarter of 2016.
UpdatedUpdated
at 6.42pm GMTat 6.42pm GMT
6.39pm GMT6.39pm GMT
18:3918:39
Here’s Deutsche Bank’s chief US economist:Here’s Deutsche Bank’s chief US economist:
#Fed makes mention of tightening at the “next meeting” depending on evolution of data; sounds like policymakers want to tighten#Fed makes mention of tightening at the “next meeting” depending on evolution of data; sounds like policymakers want to tighten
UpdatedUpdated
at 6.42pm GMTat 6.42pm GMT
6.35pm GMT6.35pm GMT
18:3518:35
The Fed has also encouraged the thought of a December rise by inserting the phrase “at its next meeting” in the following phrase,The Fed has also encouraged the thought of a December rise by inserting the phrase “at its next meeting” in the following phrase,
In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation.In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation.
In September it read: In determining how long to maintain this target range, the Committee will assess progress....In September it read: In determining how long to maintain this target range, the Committee will assess progress....
6.26pm GMT6.26pm GMT
18:2618:26
The Dow Jones Industrial Average is now in negative territory, down 13 points.The Dow Jones Industrial Average is now in negative territory, down 13 points.
6.17pm GMT6.17pm GMT
18:1718:17
There is some acknowledgement in the Fed statement that the US jobs situation has deteriorated since September (the recent non-farm payroll numbers were disappointing.)There is some acknowledgement in the Fed statement that the US jobs situation has deteriorated since September (the recent non-farm payroll numbers were disappointing.)
In September the Fed said: The labor market continued to improve, with solid job gains and declining unemployment. On balance, labor market indicators show that underutilization of labor resources has diminished since early this year.In September the Fed said: The labor market continued to improve, with solid job gains and declining unemployment. On balance, labor market indicators show that underutilization of labor resources has diminished since early this year.
Now the comment is: The pace of job gains slowed and the unemployment rate held steady. Nonetheless, labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year.Now the comment is: The pace of job gains slowed and the unemployment rate held steady. Nonetheless, labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year.
6.12pm GMT6.12pm GMT
18:1218:12
One member of the Federal Reserve Open Market Committee - the Richmond Fed’s Jeffrey Lacker - even wanted to raise rates this time round.One member of the Federal Reserve Open Market Committee - the Richmond Fed’s Jeffrey Lacker - even wanted to raise rates this time round.
Here is the voting:Here is the voting:
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.
6.09pm GMT6.09pm GMT
18:0918:09
This is the comment in September which has now been removed from the statement:This is the comment in September which has now been removed from the statement:
Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.
So the Fed is more hawkish than the markets had been expecting, with economists becoming - up until now - convinced there would be no rise in December. Now they are not so sure.So the Fed is more hawkish than the markets had been expecting, with economists becoming - up until now - convinced there would be no rise in December. Now they are not so sure.
The Dow Jones Industrial Average was up 130 points before the release of the statement but the gains have been trimmed and it is just 26 points better.The Dow Jones Industrial Average was up 130 points before the release of the statement but the gains have been trimmed and it is just 26 points better.
The dollar has gained ground, climbing to a two and a half month high against the Swiss franc. The pound has fallen from $1.5318 before the statement to $1.5272 while the euro is at its lowest against the US currency since mid-August.The dollar has gained ground, climbing to a two and a half month high against the Swiss franc. The pound has fallen from $1.5318 before the statement to $1.5272 while the euro is at its lowest against the US currency since mid-August.
6.02pm GMT6.02pm GMT
18:0218:02
But the Federal Reserve has kept the door open for a rate hike in December.But the Federal Reserve has kept the door open for a rate hike in December.
It said it was still monitoring economic and financial developments abroad, but did not repeat its September comments that global risks would have a likely impact on the US economy.It said it was still monitoring economic and financial developments abroad, but did not repeat its September comments that global risks would have a likely impact on the US economy.
The full statement is here.The full statement is here.
UpdatedUpdated
at 6.10pm GMTat 6.10pm GMT
6.00pm GMT6.00pm GMT
18:0018:00
Fed keeps rates on holdFed keeps rates on hold
Breaking news:Breaking news:
As widely expected the Federal Reserve has left US interest rates on hold after this week’s policy meeting.As widely expected the Federal Reserve has left US interest rates on hold after this week’s policy meeting.
5.17pm GMT
17:17
As a reminder, it’s been a while since the Fed last raised rates:
The Federal Reserve has not raised rates in 112 months. (In the prior cycle, 49 months) https://t.co/zT1w53pukl pic.twitter.com/j614d5AXCA
5.06pm GMT
17:06
European shares end higher
Ahead of the US Federal Reserve meeting, investors seemed in a calm mood. Gold miners rose in the expectation there would be no Fed rate rise this year, helping to support the London market, while a rise in crude prices also helped support markets. The final scores showed:
On Wall Street the Dow Jones Industrial Average is currently 91 points or 0.5% higher.
4.21pm GMT
16:21
And the best performing global stock market since the last #Fed meeting? #Jamaica pic.twitter.com/BsMeAwaTGT
4.11pm GMT
16:11
Oil price jumps nearly 5% after US inventory news
Stock markets continue to gain ground ahead of the Fed, partly lifted by a rise in oil prices.
Brent crude is up 4.6% at $48.99, helped by news that US stocks had risen by less than expected last week. The Energy Information Administration said crude inventories were 3.4m barrels higher at 479.96m, compared to forecasts of a 3.7m increase.
This was less than the 4.1m rise posted by industry group the American Petroleum Institute. John Kilduff of Again Capital in New York told Reuters:
Another spectacular, large crude oil inventory build seemed to get priced into the market, and all we got was a merely large one.
Jasper Lawler at CMC Markets said:
Oil prices rebounded strongly off two month lows as the build in US crude oil inventories slowed from last week to 3.4m barrels. The data was not confirmed by the API which yesterday reported a bigger than expected build of 4.1m barrels. Overall the US inventories stats are not overly bullish for oil prices but the market got a little overextended to the downside and is seeing a short-squeeze after two-month lows.
3.58pm GMT
15:58
Of course, if the Fed does by any chance raise interest rates this year after all, it will be going against the global trend.
While the next move in UK rates may well be higher - albeit not yet - elsewhere the move is to cut rates. China has already done so, with a surprise move last week, while the European Central Bank hinted last week that it may consider cutting rates or expanding its QE programme in December:
Markets now pricing in 5bp #ECB deposit rate cut. We expect cut of 10 to 20bps in Dec. Note: https://t.co/qLTGpcyEqI pic.twitter.com/W30E5jQ1l9
3.51pm GMT
15:51
Today’s Fed meeting is unlikely to signal much of a policy change without a press conference for the bank’s members to explain themselves, sayd Christopher Vecchio, currency analyst at DailyFX. He said:
Without a press conference or official changes to the Staff Economic Projections (and dot plot likewise), today’s meeting is more likely than not going to be a quieter one, at least by FOMC standards. The policy statement will carry a bit more weight, and even then, it’s not like Fed officials are going to ‘rock the boat’ with a material shift in policy without being able to explain/justify/pontificate about the changes in their immediate aftermath. Instead, a focus on data dependency will be the core theme we’re looking for.
Given the fact that rate expectations for the Federal Reserve have been pushed back to March 2016, at this point, anything that fails to elicit a response from yields is insignificant; if rate expectations stay around March 2016 for the first rate move, then it’s also likely that the US dollar continues along its current trajectory.
3.33pm GMT
15:33
The next major event on the agenda is the Federal Reserve policy decision, and as indicated earlier, the bank is expected to keep interest rates on hold.
The Fed's expected announcement at 2 pm that it is not raising rates means we will complete a seventh year at the zero lower bound.
While there are still some who think the Fed may raise rates this year, perhaps in December, the wealth of weak data from the US and elsewhere (China anyone?) means that seems increasingly unlikely.
But that does not mean this evening’s announcement is not without interest. Seasoned Fed watchers will be looking for any nuances in the statement which accompanies the rate news. Michael Hewson, chief market analyst at CMC Markets UK, explains:
While no change is expected today the statement will be closely scrutinised for any change of tone with respect to the timing of a rate rise this year. In its last statement the Fed referred to an improving labour market with solid job gains, but since then we’ve had a poor September payrolls report as well as a downward revision to the August number, raising the prospect of a softening labour market.
More importantly, will the committee keep the line that “risks to the outlook for economic activity and the labour market as nearly balanced,” or will they soften the language in a way that reflects the concerns of Fed governor and permanent voting member Lael Brainard in comments made recently, that economic risks are “tilted to the downside”?
In truth the window for raising rates this year appears to be getting ever smaller and was probably slammed shut last week in Beijing when the People’s Bank of China cut rates again for the fifth time this year, in an attempt to help boost the slowing Chinese economy so that it doesn’t miss its 7% GDP target by too much.
With the potential for yet more policy easing from the ECB at its December meeting, and the effects of a stronger US dollar starting to trickle down into US earnings numbers, it is hard to imagine a scenario where the Fed would feel comfortable raising rates at a time when GDP targets are being revised lower on an almost weekly basis, with the latest Atlanta Fed model for third quarter GDP now at 0.8%.
In short if the Fed weren’t prepared to raise rates in September, they are hardly likely to now, or in six weeks’ time, given that since that meeting the data has been shown little sign of any improvement, if anything it’s been heading in the opposite direction.
You would need to see a Lazarus like turnaround in the data, not only in the US, but also in China and Europe to increase the current odds on a December move which currently sit at 32.8%.
Updated
at 5.58pm GMT
3.00pm GMT
15:00
Afternoon summary: VW's historic loss
A quick recap of the main points:
Volkswagen has been dragged into its first quarterly loss in at least 15 years, by the cost of clearing up the emissions scandal.
The German carmaker also warned that profits for this financial year will be substantially below its previous target, and revealed that sales were already below 2014’s levels before it admitted cheating on emission tests.
VW’s new chief executive has vowed to discover exactly how the scandal occurred. Matthias Müller is now flying to China with chancellor Angela Merkel for a two-day diplomatic and trade visit.
Related: VW chief promises 'ruthless' crackdown on culprits of emissions scandal
UK steelworkers have demonstrated outside the House of Commons, asking MPs to help the industry and stem the loss of jobs.
Prime minister David Cameron has offered some hope, saying that the government will lift the ‘green taxes’ pushing up energy bills, once Brussels approves it.
That won’t end the crisis gripping the industry, though, with demand slumping at record rates:
The head of China's steel industry says demand is collapsing at an unprecedented rate. https://t.co/KIjkVEw6Nd pic.twitter.com/TQksYREote
In the City, Jes Staley has played down talk that he will revive Barclays investment banking arm, after being named as the company’s new CEO this morning:
Related: Barclays appoints Jes Staley as new chief executive
Sweden’s central bank has boosted its quantitative easing programme, in an attempt to ward off deflation and weaken its currency.
The move helped to drive shares higher across Europe, with investors speculating that the ECB will soon announce a big new stimulus package too.
Here’s the state of play in the main stock markets right now, as investors wait for the US Federal Reserve’s decision on interest rates in three hours time:
Updated
at 3.01pm GMT
2.41pm GMT
14:41
Remember with US clocks still to go back, Fed confusion is at 6pm UK time and not 7pm this month
1.58pm GMT
13:58
Wall Street rises ahead of the Fed
Shares are rallying a little in New York at the start of the day’s trading.
The Dow Jones industrial average has gained 51 points, or 0.3%, to 17,632. Apple has gained 2%, as investors welcomed last night’s financial results; its best year ever.
The general mood on Wall Street is quite relaxed; investors are confident that the Federal Reserve will leave interest rate unchanged at today’s meeting (the decision comes at 2pm Washington time, or 6pm GMT).
Indeed, many economists believe that rates won’t rise into March 2016, given the troubles in emerging markets and signs of slowing growth in advanced economies.
Morning Note: 1. Staley gets the Barclays job. 2. VW faces first loss in over 15 yrs. 3. There's a Fed meeting? pic.twitter.com/zvTxMy8T9U