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Version 22 Version 23
US Federal Reserve raises interest rates and says recovery is on track - as it happened US Federal Reserve raises interest rates and says recovery is on track - as it happened
(35 minutes later)
9.23pm BST9.23pm BST
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Closing summaryClosing summary
That’s all for today. Here’s a quick round-up.That’s all for today. Here’s a quick round-up.
The US Federal Reserve has pressed on with the normalisation of interest rate policy, by hiking borrowing costs for the second time this year. The Fed funds rate is now 1% to 1.25%.The US Federal Reserve has pressed on with the normalisation of interest rate policy, by hiking borrowing costs for the second time this year. The Fed funds rate is now 1% to 1.25%.
The Fed is also broadly sticking to its previous guidance for interest rate rises over the next couple of years. Chair Janet Yellen tried to cool speculation that recent weak inflation might make the central bank more dovish.The Fed is also broadly sticking to its previous guidance for interest rate rises over the next couple of years. Chair Janet Yellen tried to cool speculation that recent weak inflation might make the central bank more dovish.
The Fed remains confident that the US economy is recovering, saying:The Fed remains confident that the US economy is recovering, saying:
The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further.The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further.
Economists said the move shows that the Fed believes the recovery is on track.Economists said the move shows that the Fed believes the recovery is on track.
Ian Kernohan, senior economist at Royal London Asset Management, says:Ian Kernohan, senior economist at Royal London Asset Management, says:
“The Fed made little changes in the language or projections for further interest rate hikes.“The Fed made little changes in the language or projections for further interest rate hikes.
They acknowledged that inflation was running below target, but also that job gains have been solid. We expect another rate hike and some balance sheet normalisation before the end of the year.”They acknowledged that inflation was running below target, but also that job gains have been solid. We expect another rate hike and some balance sheet normalisation before the end of the year.”
In another sign of confidence, the Fed outlined its plans to start selling off some of the assets bought during its stimulus programme.In another sign of confidence, the Fed outlined its plans to start selling off some of the assets bought during its stimulus programme.
During a press conference, Janet Yellen said she’d not discussed her future with president Trump. She remains committed to serving her full term (to February 2018).During a press conference, Janet Yellen said she’d not discussed her future with president Trump. She remains committed to serving her full term (to February 2018).
Wall Street took the news in its stride, with the Dow Jones ending the day at a new high thanks to rising financial stocks.Wall Street took the news in its stride, with the Dow Jones ending the day at a new high thanks to rising financial stocks.
The US dollar also strengthened during Yellen’s press conference, as traders anticipated further rate hikes down the line.The US dollar also strengthened during Yellen’s press conference, as traders anticipated further rate hikes down the line.
Scott Minerd of investment firm Guggenheim Partners sums it up:Scott Minerd of investment firm Guggenheim Partners sums it up:
Now hawkish #Fed gave more info than expected on balance sheet tapering and the market gave the data dump a free pass.Now hawkish #Fed gave more info than expected on balance sheet tapering and the market gave the data dump a free pass.
That’s all for tonight. Thanks for reading and commenting. GWThat’s all for tonight. Thanks for reading and commenting. GW
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Dow closes at record high but Nasdaq dipsDow closes at record high but Nasdaq dips
DING DING goes the closing bell on Wall Street.DING DING goes the closing bell on Wall Street.
And the Dow Jones industrial average has finished at a record high, up around 0.2%And the Dow Jones industrial average has finished at a record high, up around 0.2%
But the technology-focused Nasdaq index has dropped by 0.6%.But the technology-focused Nasdaq index has dropped by 0.6%.
8.55pm BST8.55pm BST
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Capital Economists have provided a brisk summary of the Fed’s decisions today:Capital Economists have provided a brisk summary of the Fed’s decisions today:
As widely expected, the Fed raise its policy rate target by an additional 25bp today, to between 1.00% and 1.25% and, despite the recent weakness of core inflation, Fed officials still expect to raise that rate once more in the second half of this year.As widely expected, the Fed raise its policy rate target by an additional 25bp today, to between 1.00% and 1.25% and, despite the recent weakness of core inflation, Fed officials still expect to raise that rate once more in the second half of this year.
The Fed also laid out plans for shrinking its balance sheet, with the initial run-off even smaller than we had previously expected, although it offered no specifics on the timing of when that normalisation would begin other than “this year”.The Fed also laid out plans for shrinking its balance sheet, with the initial run-off even smaller than we had previously expected, although it offered no specifics on the timing of when that normalisation would begin other than “this year”.
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Wall Street isn’t too happy with Janet Yellen’s comments.Wall Street isn’t too happy with Janet Yellen’s comments.
The Nasdaq index has dropped by 1% after the Fed chair downplayed recent weak inflation data and signalled that US interest rates will continue to rise over the next couple of years.The Nasdaq index has dropped by 1% after the Fed chair downplayed recent weak inflation data and signalled that US interest rates will continue to rise over the next couple of years.
The S&P 500 is down 0.25%, while the Dow Jones industrial average is flat.The S&P 500 is down 0.25%, while the Dow Jones industrial average is flat.
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Finally, Yellen gets a question about apprenticeships, and Donald Trump’s new push to get more Americans to develop their work skills on the job (a specialist subject for the President, of course).Finally, Yellen gets a question about apprenticeships, and Donald Trump’s new push to get more Americans to develop their work skills on the job (a specialist subject for the President, of course).
Yellen agrees that it’s an important area.Yellen agrees that it’s an important area.
It is hard for firms to find workers with appropriate skills right now, as the labor market is so tight.It is hard for firms to find workers with appropriate skills right now, as the labor market is so tight.
It’s a particular problem for smaller businesses, she explains, as they have less latitude to retrain workers.It’s a particular problem for smaller businesses, she explains, as they have less latitude to retrain workers.
Really interesting from Yellen on labor markets: large employers are upgrading employee skills bc of low labor availability, small can't.Really interesting from Yellen on labor markets: large employers are upgrading employee skills bc of low labor availability, small can't.
Yellen on apprenticeships: labor market is tight, larger firms spending more on training... and this is an "important area."Yellen on apprenticeships: labor market is tight, larger firms spending more on training... and this is an "important area."
That’s the end of the press conferenceThat’s the end of the press conference
8.29pm BST8.29pm BST
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Yellen: QE works!Yellen: QE works!
Q: Now you are getting ready to reduce your balance sheet, what have you learned about QE and whether it works?Q: Now you are getting ready to reduce your balance sheet, what have you learned about QE and whether it works?
Great question, says Yellen, who explains how staff at the Fed, and outside, have done a great deal of work evaluating QE.Great question, says Yellen, who explains how staff at the Fed, and outside, have done a great deal of work evaluating QE.
I think we have learned that it works, it’s a valuable part of the toolkit.I think we have learned that it works, it’s a valuable part of the toolkit.
How has it worked, exactly? Yellen says QE (buying huge amounts of bonds with new money) succeeded in putting downward pressure on longer-term interest rates.How has it worked, exactly? Yellen says QE (buying huge amounts of bonds with new money) succeeded in putting downward pressure on longer-term interest rates.
And it hasn’t caused the “runaway inflation” which some critics feared. “Quite the reverse” says Yellen, dryly.And it hasn’t caused the “runaway inflation” which some critics feared. “Quite the reverse” says Yellen, dryly.
So in future, if the Fed hit an episode of extreme economic weakness its primary weapon would be interest rates. But if it reached the point where it couldn’t cut again (the zero lower bound), QE could be deployed.So in future, if the Fed hit an episode of extreme economic weakness its primary weapon would be interest rates. But if it reached the point where it couldn’t cut again (the zero lower bound), QE could be deployed.
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Q: The president has credited you with being a ‘low interest’ person. Do you agree? Q: The president has credited you with being a ‘low interest rate’ person. Do you agree?
Yellen says she ‘strongly supported’ the Fed’s policy of keeping interest rates at record lows after the financial crisis -- so i guess she’s accepting the accolade, despite having just raised rates!Yellen says she ‘strongly supported’ the Fed’s policy of keeping interest rates at record lows after the financial crisis -- so i guess she’s accepting the accolade, despite having just raised rates!
Updated
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Q: What do you say to the group of economists who are calling for the Fed’s inflation target to be raised?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][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 it’s a very important issue.Yellen plays a straight bat (unlike the England cricket team today, alas), saying it’s a very important issue.
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.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: Reconsideration of 2% infl target is "one of the most impt questions facing monetary policy around the world"Yellen: Reconsideration of 2% infl target is "one of the most impt questions facing monetary policy around the world"
Yellen on raising the inflation target: Fed will reconsider at some future time, want to take in wide range of views and research.Yellen on raising the inflation target: Fed will reconsider at some future time, want to take in wide range of views and research.
UpdatedUpdated
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Fidelity’s chief economist, Anna Stupnytska, is surprised that Yellen is sounding more cautious - especially about inflation and wage growth.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#Fed completely ignoring low #inflation and wage growth. Hawkish. Quite incredible! #Yellen #USD
8.01pm BST8.01pm BST
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Back to inflation...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?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?!).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.But it’s “certainly possible” that structural factors are partly to blame, she adds.