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US Federal Reserve raises interest rates - business live Janet Yellen's press conference after US Federal Reserve raises interest rates - business live
(35 minutes later)
8.11pm BST
20:11
Q: What do you say to the group of economists who are calling for the Fed’s inflation target to be raised?
[This group, which includes Nobel laureate Joe Stiglitz, warned that the Fed could trigger a recession if it kept raising rates]
Yellen plays a straight bat (unlike the England cricket team today, alas), saying the Fed is open to a wide range of views, and might reconsider its target sometime in the future....ants to take in a wide range of views
Yellen on raising the inflation target: Fed will reconsider at some future time, want to take in wide range of views and research.
8.07pm BST
20:07
Fidelity’s chief economist, Anna Stupnytska, is surprised that Yellen is sounding more cautious - especially about inflation and wage growth.
#Fed completely ignoring low #inflation and wage growth. Hawkish. Quite incredible! #Yellen #USD
8.01pm BST
20:01
Back to inflation...
Q: Is it possible that globalisation, and falling central bank credibility, mean we’ve entered an era of low inflation where it will be very hard to get wages and prices rising again?
Yellen doesn’t think that the Federal Reserve’s credibility has been impaired (but what else would a Fed chair say?!).
But it’s “certainly possible” that structural factors are partly to blame, she adds.
7.59pm BST
19:59
7.57pm BST
19:57
Yellen says she’s not seen much evidence that Donald Trump’s proposed tax and spending plans have changed consumer or business spending.
7.56pm BST
19:56
Q: Is the Fed worried about the recent run of weak inflation futures?
Yellen doesn’t sound too worried, saying that inflation can be “noisy” and affected by idiosyncratic factors.
She cites cuts to cell phone contract prices, and some over-the-counter medicines.
7.54pm BST
19:54
Yellen: No talks with Trump about my future
Onto questions, and the press pack quickly home in on Yellen’s future.
Q: Have you spoken to the president about the possibility of serving a second term, and would you be interested? Yellen says she is fully committed to serving her full first term, but she’s not had any discussions with president Trump about a second term.
She declines to say whether she’d like to say on when her first term expires (in February 2018).
[Background: Trump dropped loud hints last year that he would replace Yellen]
Q: Are you disappointed that Trump’s administration haven’t produced any nominees for the Fed’s board of governors?
The White House is working hard to find nominees for open slots, Yellen replies. She “very much hopes” there will be nominations in the not too distant future.
Updated
at 7.58pm BST
7.45pm BST
19:45
Yellen is now outlining the Fed’s plan to start reducing its balance sheet later this year [details here].
She confirms that the Fed will take a cautious approach, initially with a $6bn monthly cap on sales of Treasury bonds and $4bn on mortgage-backed securities.
This cap, which is expected to rise every quarter, will avoid any “market strains” as the Fed sells some of the assets bought during the financial crisis to stimulate the economy.
Yellen also cautions that there is no rush to take decisions about the long-run framework of monetary policy. Big decisions, like the ideal future composition of the Fed’s balance sheet, needn’t be taken for “quite some time”.
7.41pm BST
19:41
Janet Yellen also acknowledges the shooting in Virginia earlier today, where several people including Steve Scalise, Republican House majority whip, were shot.
Our thoughts are with those who were injured this morning, the Fed chair says.
Fed Chair Yellen: "Our thoughts are with those who were injured this morning"Live: https://t.co/WsY9lk7UDP pic.twitter.com/hEBVjoAJ9h
7.39pm BST
19:39
Fed chair Janet Yellen explains that today’s interest hike reflects the “progress” in the economy, which appears to have “rebounded” after slowing in the first three months of 2017.
A pick-up in global growth is helping US exports, she says.
Yellen adds that the job market will probably strengthen further, but cautions that it is near its “maximum sustainable level”.
On inflation, she credits one-off factors for the recent slowdown in inflation.
And the bottom line - the Fed continues to expect that gradual increases in borrowing costs will be needed to keep inflation close to target, while sustaining the economic expansion.
But, rates are still likely to be lower than in previous economic cycles, she adds.
7.34pm BST7.34pm BST
19:3419:34
Janet Yellen's press conference beginsJanet Yellen's press conference begins
Over in Washington, Federal Reserve chair Janet Yellen is holding a press conference to discuss today’s decisions.Over in Washington, Federal Reserve chair Janet Yellen is holding a press conference to discuss today’s decisions.
You can watch it live here.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.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 BST7.26pm BST
19:2619:26
The most important news tonight is the new guidelines on Fed balance sheet reduction.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.So says Tom Stevenson, investment director for personal investing at Fidelity International.
Stevenson explains: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%. ...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.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 BST7.23pm BST
19:2319:23
The Fed has taken another step towards “normalisation”, says Nancy Curtin, chief investment officer at Close Brothers Asset Management commented.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.“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.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.”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 BST
18:42
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 ...
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.
Updated
at 7.07pm BST
5.38pm BST
17:38
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:
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, 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.
Updated
at 7.08pm BST
5.28pm BST
17:28
Mixed 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:
The FTSE 100 finished down 26.04 points or 0.35% at 7474.40
Germany’s Dax rose 0.32% to 12,805.95
France’s Cac closed down 0.35% at 5243.29
Italy’s FTSE MIB fell 0.61% to 20,960.55
Spain’s Ibex ended down 0.98% at 10,775.8
In 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%.
4.59pm BST
16:59
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/W3EUZ28EDp