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US Federal Reserve raises interest rates - business live US Federal Reserve raises interest rates - business live
(35 minutes later)
7.34pm BST
19:34
Janet Yellen's press conference begins
Over in Washington, Federal Reserve chair Janet Yellen is holding a press conference to discuss today’s decisions.
You can watch it live here.
Yellen is explaining that the Fed “continues to expect that the economy will expand at a moderate pace”, as conditions continue to improve in the labour market.
7.26pm BST
19:26
The most important news tonight is the new guidelines on Fed balance sheet reduction.
So says Tom Stevenson, investment director for personal investing at Fidelity International.
Stevenson explains:
There was never much doubt that the Federal Reserve would raise interest rates by a further 0.25% at today’s meeting to between 1% and 1.25%. ...
More important was what the US central had to say about its plans to rein in its bloated balance sheet, which has ballooned to $4.5trn since the financial crisis as the Fed has bought government and mortgage-backed bonds to underpin the American economy. The Fed said today that it would decrease reinvestment of maturing bonds at a steadily increasing rate until after a year it is holding back $30bn a month on Government bonds and $20bn on mortgage backed securities.
7.23pm BST
19:23
The Fed has taken another step towards “normalisation”, says Nancy Curtin, chief investment officer at Close Brothers Asset Management commented.
“Recent economic indicators have not been weak enough to prevent Yellen pulling the lever on the third rate hike in seven months.
Yes, inflation remains elusive, and wage growth relatively weak, but the data does not suggest growth has slowed enough to suggest a change in tack.
The decision to raise rates doesn’t signal the beginning of ‘tight’ monetary policy from the Federal Reserve, but it does mark another step towards normalisation, as well as confidence in the long-term recovery of the economy.”
7.22pm BST
19:22
Today’s interest rate hike shows that the Federal Reserve is confident that the US economy is recovering, says Kully Samra, UK Managing Director at Charles Schwab.
Samra adds:
Despite recent underwhelming jobs numbers, the underlying US economic data remains robust enough to warrant tightening.
While the economy is bouncing back from a weak first quarter, earnings have been strong and even in the wake of continued political uncertainty, corporate confidence remains secure. The market has demonstrated that it is comfortable with gradual rate hikes and will be reassured that the Fed has today committed to its promises. We expect at least one more rate hike this year but incoming data will influence future decisions.”
7.20pm BST
19:20
We have some unexpected news - the Fed has outlined how it expects to start reducing its huge balance sheet.
Reuters has a great explanation:
The Fed gave a clear outline on its plan to reduce its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2007-2009 financial crisis and recession.
“The committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated,” the Fed said in its statement.
According to an addendum released with the policy statement, the Fed anticipates that the balance sheet reduction plan would feature halting reinvestments of ever-larger amounts of maturing securities.
The Fed sees the cap for Treasury securities to be $6 billion per month initially, increasing in $6 billion increments at three-month intervals over 12 months until it reaches $30 billion per month.
For agency debt and mortgage-backed securities, the cap will be $4 billion per month initially, increasing by $4 billion at quarterly intervals over a year until it reaches $20 billion per month.
7.16pm BST
19:16
The Federal Reserve has updated its dot plot, which shows where each policymaker thinks interest rates will be over the next few years.
It shows that 4 policymakers expect rates will remain on hold for the rest of 2017.
Eight Fed voters predict one more rate hike -- the central view - and another four expect two.
As this chart shows, that means one voter is less hawkish than in March.
Dot Plot Changes June vs March: pic.twitter.com/vYBiFDIKWi
7.13pm BST
19:13
The US dollar has fallen by 0.4% against a basket of currencies as Wall Street digests today’s announcement.
So far muted dollar reaction https://t.co/kKj3XUxOCm pic.twitter.com/nEFsdmQ6cb
7.08pm BST
19:08
In its prepared statement, the Federal Reserve says that America’s labour market has “continued to strengthen” since its last meeting.
Economic activity has been “rising moderately” so far this year, the Fed says:
Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined. Household spending has picked up in recent months, and business fixed investment has continued to expand.
The Fed also acknowledge that inflation is “somewhat below 2%” – a nod to today’s weaker-than-expected CPI data.
They add:
Inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilise around the committee’s 2% objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.
#Fed hikes rates 25bps as expected to 1.25%, Maintains forecast for 1 more hike in 2017. Here is the statement. https://t.co/KpIkgmztAl pic.twitter.com/ARMHWrfrG2
Updated
at 7.12pm BST
7.02pm BST
19:02
FED RAISES INTEREST RATES
Breaking: The Federal Reserve has voted to raise American interest rates today, to a range of 1% to 1.25%.
That’s a quarter-point move, and exactly what Wall Street expected ...
The Fed has also stuck to its forecast of one more interest rate rise this year.
Updated
at 7.06pm BST
6.42pm BST6.42pm BST
18:4218:42
Just over 15 minutes to go, until the Federal Reserve either delivers the interest rate hike that the markets expect, or shocks us by leaving borrowing costs on hold.... Just over 15 minutes to go, until the Federal Reserve either delivers the interest rate hike that the markets expect, or shocks us by leaving borrowing costs on hold ...
US rate decision due at 7pm UK time. Markets pricing in a 95% chance the Fed will raise rates for the second time this year.US rate decision due at 7pm UK time. Markets pricing in a 95% chance the Fed will raise rates for the second time this year.
UpdatedUpdated
at 6.42pm BST at 7.07pm BST
5.38pm BST5.38pm BST
17:3817:38
Earlier, on the BBC’s Today programme, the consensus seemed to be the US Federal Reserve would be raising rates. George Magnus, economist and senior advisor at UBS said:Earlier, on the BBC’s Today programme, the consensus seemed to be the US Federal Reserve would be raising rates. George Magnus, economist and senior advisor at UBS said:
I think they (Fed) really want to do this (rate rise) and I think they want to do it because they are trying to normalise the situation. They’re quite worried about sub prime - in other words less than good quality automobile loans and commercial real estate. So they have other concerns in addition to the economy. After today though things might change because if inflation doesn’t pick up in the United States later this year then the expectations that the Federal Reserve will keep going will be revised. I think they [the Fed] really want to do this [rate rise] and I think they want to do it because they are trying to normalise the situation. They’re quite worried about sub prime – in other words less than good quality automobile loans and commercial real estate. So they have other concerns in addition to the economy. After today, though, things might change, because if inflation doesn’t pick up in the United States later this year then the expectations that the Federal Reserve will keep going will be revised.
Megan Greene, chief economist at Manulife Asset Management added: Megan Greene, chief economist at Manulife Asset Management, said:
The US economy is fundamentally a 2% growth economy. All the soft data, the surveys have been great but if you look at the hard data it doesn’t look as great, it doesn’t look terrible either. The US recovery is continuing, it’s not as strong as the markets might suggest...I also agree that the Fed will hike rates today. As long as the markets are aligned as they are with yields pretty low, the dollar fairly weak but equity markets soaring, it gives the Fed room to hike. Of course they’d like to not just normalise rates but start shrinking their balance sheet but there’s a deadline for that which is when Janet Yellen’s term ends next year. The US economy is fundamentally a 2% growth economy. All the soft data, the surveys have been great but if you look at the hard data it doesn’t look as great, it doesn’t look terrible either. The US recovery is continuing, it’s not as strong as the markets might suggest ... I also agree that the Fed will hike rates today. As long as the markets are aligned as they are with yields pretty low, the dollar fairly weak but equity markets soaring, it gives the Fed room to hike. Of course they’d like to not just normalise rates but start shrinking their balance sheet but there’s a deadline for that which is when Janet Yellen’s term ends next year.
Updated
at 7.08pm BST
5.28pm BST5.28pm BST
17:2817:28
Mixed day for European marketsMixed day for European markets
A slump in the oil price after disappointing US weekly inventory figures has seen some of the shine come off stock markets. The FTSE 100 has also been hit by a rise in sterling, which is bad news for the overseas earners which dominate the UK’s leading index. On top of that, commodity companies fell back despite some reasonable industrial production figures from China. There was also some caution among investors ahead of the US Federal Reserve meeting, which is widely expected to raise interest rates later. The final scores in Europe showed:A slump in the oil price after disappointing US weekly inventory figures has seen some of the shine come off stock markets. The FTSE 100 has also been hit by a rise in sterling, which is bad news for the overseas earners which dominate the UK’s leading index. On top of that, commodity companies fell back despite some reasonable industrial production figures from China. There was also some caution among investors ahead of the US Federal Reserve meeting, which is widely expected to raise interest rates later. The final scores in Europe showed:
The FTSE 100 finished down 26.04 points or 0.35% at 7474.40The FTSE 100 finished down 26.04 points or 0.35% at 7474.40
Germany’s Dax rose 0.32% to 12,805.95Germany’s Dax rose 0.32% to 12,805.95
France’s Cac closed down 0.35% at 5243.29France’s Cac closed down 0.35% at 5243.29
Italy’s FTSE MIB fell 0.61% to 20,960.55Italy’s FTSE MIB fell 0.61% to 20,960.55
Spain’s Ibex ended down 0.98% at 10,775.8Spain’s Ibex ended down 0.98% at 10,775.8
In Greece, the Athens market added 0.48% to 800.97In Greece, the Athens market added 0.48% to 800.97
On Wall Street, the Dow Jones Industrial Average is currently up 9 points or 0.04%.On Wall Street, the Dow Jones Industrial Average is currently up 9 points or 0.04%.
4.59pm BST4.59pm BST
16:5916:59
Six months of #OPEC and Russian output cuts, and WTI is now under $45 a barrel. This isn't going as Riyadh and Moscow had it planned. #OOTT pic.twitter.com/W3EUZ28EDpSix months of #OPEC and Russian output cuts, and WTI is now under $45 a barrel. This isn't going as Riyadh and Moscow had it planned. #OOTT pic.twitter.com/W3EUZ28EDp
4.18pm BST
16:18
On oil, Chris Beauchamp, chief market analyst at IG, said:
Oil prices are in freefall again, thanks to a second consecutive failure of forecasters on the oil inventories front. Stockpiles dropped by much less than forecast, although at least they got the direction right this week, after last week’s shock rise in inventories. What is particularly noticeable is that oil production continues to rise, even as prices fall. It looks like everyone is keen to get as much sold before another rout in prices. WTI now trades at its lowest level in six weeks, with little sign of a turnaround in place.
3.52pm BST
15:52
Seems there's only one thing that matters in the oil market these days #oott pic.twitter.com/2CFx2TUG1X
Both Brent crude and West Texas Intermediate are now down more than 2%.
3.42pm BST
15:42
Oil price slides after US crude stocks fall by less than expected
The weekly US oil figures have shown a smaller than forecast fall in crude stocks.
The Energy Information Admistration said crude stocks fell by 1.66m barrels last week to 511.55m, lower than the 2.7m drop expected by the market and indicating weaker than expected demand. Gasoline stocks rose by 2.1m barrels compared to forecasts of a 0.5m decline.
Crude prices, which have been buffetted by concerns that Opec’s output cuts were having little effect given rising US production, have seen their losses increase following the figures.
Brent, down 0.88% before the US data, has now fallen 1.64% to $47.92 a barrel. West Texas Intermediated has seen its losses increase from 0.8% to 1.89%.
Updated
at 3.56pm BST
3.20pm BST
15:20
Back with the dollar, and it has fallen to its lowest level against the euro since the start of November. The single currency currently sits at $1.1286, up 0.64%, after reaching $1.1295.
Bloomberg Dollar Index in free fall following weak US econ numbers. Drops to the lowest level since Oct2016 on lower rate hike expectations. pic.twitter.com/YYLH7YOM6C
Updated
at 3.22pm BST
2.42pm BST
14:42
Dow hits new high as Wall Street opens
With the uncertainty over the Federal Reserve’s view on further interest rate rises in the wake of the day’s weak data, Wall Street has made a mixed start.
The Dow Jones Industrial Average hit a new peak of 21,354 initially, before falling back to 21,334, a gain of around 6 points. The S&P 500 edged up 0.12% at the open, while the Nasdaq Composite was unchanged.
2.36pm BST
14:36
Jasper Lawler, senior market analyst at London Capital Group, also believes the weak US data casts doubts on further Federal Reserve rate hikes after today:
A double dose of soft economic data sent the US dollar plunging and gold rallying before the Federal Reserve rate decision. Slowing inflation and flat retail sales add to the growing sense that today’s meeting could see the last US rate rise this year.
We would be in a state of shock if the Federal Reserve didn’t lift interest rates at its meeting later today.... Movement in the dollar will depend on what kind of signal policymakers give about the next hike, possibly in September. The US economy has not been firing on all cylinders but the Fed risks losing credibility if it backed off from a rate hike when it’s been so heavily intonated. A ‘dovish hike’ seems most appropriate, which may not be enough to generate enthusiasm for the dollar.
Updated
at 2.39pm BST
2.17pm BST
14:17
Pound above $1.28 for first time since election
With the expectations for further US rate rises after today dimming, the dollar is continuing to weaken.
This is to the benefit of the pound, which has climbed above $1.28 for the first time since the UK election. It was a brief moment, but sterling is still up 0.36% at $1.2795.
2.11pm BST
14:11
The weaker than expected US inflation and retail sales figures could mean the Federal Reserve being more cautious about further interest rate rises this year, says James Knightley of ING Bank:
This [data] creates more of a headache for the Federal Reserve in how it communicates its hiking strategy. They keep talking about slower growth and weaker inflation being transitory (the word was used on nine separate occasions in the minutes to the May FOMC meeting), but the longer we go without seeing growth and inflationary pressures is resulting in the markets becoming less convinced about higher interest rates.
With little sign of tax reform and fiscal stimulus coming the Fed will likely sound more cautious on the prospect of an additional hike later this year even though their forecasts will almost certainly include it when released later on today.
1.57pm BST
13:57
US data gloom: What the experts say
The dollar has just hit a one week-low against a basket of currencies, as the markets give their verdict to that double-dose of US data.
Jamie McGeever of Reuters says today’s inflation figures were much weaker than expected:
US core CPI falls to 1.7% in May, the lowest in 2 years and below every one of 48 economists' forecasts in a Reuters poll.
Matt Boesler of Bloomberg has spotted that the markets are repricing their interest rate hike expectations:
Market odds on a Fed rate hike in September following that CPI release are below 20% for the first time since the eve of the U.S. election
Colin Cieszynski of CMC Markets wonders if the Fed might even leave interest rates on hold today, rather than delivering the hike that has been priced in by the markets:
#USD selling off as soft #CPI inflation and poor #retailsales spark spec #Fed could pause or deliver a dovish hike today. #FOMC #forex pic.twitter.com/zNq3dALTX8
Chris Vecchio of Daily FX suggests the US dollar will have a volatile day
Between CPI & Retail Sales, and the FOMC meeting, today could be a rough day for the US Dollar $DXY https://t.co/wZMhyCKdCW
1.44pm BST
13:44
...and US retail sales disappoint too!
Another newsflash! US retail sales have suffered their biggest decline in 16 months.
Retail sales declined by 0.3% in May, new figures from the Commerce Department show. That’s the biggest drop since January 2016, and dashes expectations of a 0.1% rise.
It’s another signal that the US recovery might not be as strong as hoped, and means the dollar is getting quite a hoofing.
Dollar drops after CPI and retail sales miss ahead of Fed decision https://t.co/qVADYLT5r8 pic.twitter.com/UfV0dFC2qp