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Version 16 Version 17
Fed "kowtows to Trump"; UK inflation rises; Pound get Brexit jitters - as Fed "kowtows to Trump"; UK inflation rises; Pound get Brexit jitters - as it happened
(about 4 hours later)
And finally.... the US stock market has closed in the red, following Europe’s lead.And finally.... the US stock market has closed in the red, following Europe’s lead.
Despite the Fed’s newfound dovishness, the Dow Jones industrial average finished 140 points lower at 25,746.Despite the Fed’s newfound dovishness, the Dow Jones industrial average finished 140 points lower at 25,746.
The broader S&P 500 shed 0.3%, while the Nasdaq was a teensy 0.1% higher when the closing bell rang.The broader S&P 500 shed 0.3%, while the Nasdaq was a teensy 0.1% higher when the closing bell rang.
On that note, goodnight! GWOn that note, goodnight! GW
Financial markets usually perk up when central banks turn dovish, as it offers the chance of more easy money and higher asset prices. But they may also worry that this dovishness means tougher times ahead. Neil Birrell, Chief Investment Officer, Premier Asset Management, explains why the Fed may make some investors anxious:Financial markets usually perk up when central banks turn dovish, as it offers the chance of more easy money and higher asset prices. But they may also worry that this dovishness means tougher times ahead. Neil Birrell, Chief Investment Officer, Premier Asset Management, explains why the Fed may make some investors anxious:
“There was no surprise in the Fed’s decision to leave its interest rate unchanged; as it stands there is unlikely to be any change this year. However, the longer term outlook for rates is interesting; only one increase is being signalled in 2020, which is less than expected.“There was no surprise in the Fed’s decision to leave its interest rate unchanged; as it stands there is unlikely to be any change this year. However, the longer term outlook for rates is interesting; only one increase is being signalled in 2020, which is less than expected.
“This could well have investors fretting over economic growth and is likely to be negative for the dollar, but loose monetary policy has driven equity and bond markets for the last decade and that remains in place. In the short term those markets will have some support, but attention will turn to weaker growth and the peak of the cycle approaching.”“This could well have investors fretting over economic growth and is likely to be negative for the dollar, but loose monetary policy has driven equity and bond markets for the last decade and that remains in place. In the short term those markets will have some support, but attention will turn to weaker growth and the peak of the cycle approaching.”
Jerome Powell wraps up his press conference, by re-reiterating that the Fed is in no rush to change monetary policy.Jerome Powell wraps up his press conference, by re-reiterating that the Fed is in no rush to change monetary policy.
Investors are reacting - by predicting that American interest rates will head DOWNWARDS next year (if not earlier...)Investors are reacting - by predicting that American interest rates will head DOWNWARDS next year (if not earlier...)
As Fed Chair Powell speaks at the FOMC press conference, Eurodollar contracts are now pricing in a full 25-bps rate cut during 2020. pic.twitter.com/99STbaEf94As Fed Chair Powell speaks at the FOMC press conference, Eurodollar contracts are now pricing in a full 25-bps rate cut during 2020. pic.twitter.com/99STbaEf94
US interest rates may have reached the peak of the current cycle, predicts Nick Maroutsos, Co-Head of Global Bonds at Janus Henderson.US interest rates may have reached the peak of the current cycle, predicts Nick Maroutsos, Co-Head of Global Bonds at Janus Henderson.
“Our core view is that the Federal Reserve will keep rates on hold for the balance of 2019. We believe that if the Fed is done hiking, other central banks will follow suit. Furthermore, it is our expectation that the next move by the Fed will be to cut interest rates.“Our core view is that the Federal Reserve will keep rates on hold for the balance of 2019. We believe that if the Fed is done hiking, other central banks will follow suit. Furthermore, it is our expectation that the next move by the Fed will be to cut interest rates.
“The global environment is fraught with heightened geopolitical risk and threats to economic growth, including – but not limited to – U.S.-China trade tensions, European political challenges and Brexit negotiations.“The global environment is fraught with heightened geopolitical risk and threats to economic growth, including – but not limited to – U.S.-China trade tensions, European political challenges and Brexit negotiations.
Q: How worried are you about Brexit?Q: How worried are you about Brexit?
Jerome Powell says the Fed is watching Brexit carefully, and hopes it can be resolved in an orderly way.Jerome Powell says the Fed is watching Brexit carefully, and hopes it can be resolved in an orderly way.
America’s financial system is prepared for the full range of outcomes, he adds, and have enough capital to cope.America’s financial system is prepared for the full range of outcomes, he adds, and have enough capital to cope.
Powell is now explaining that inflation remains low, a good reason not to raise interest rates.Powell is now explaining that inflation remains low, a good reason not to raise interest rates.
A big part of Powell's patience rationale, in one handy chart. pic.twitter.com/z0cHpUVg1WA big part of Powell's patience rationale, in one handy chart. pic.twitter.com/z0cHpUVg1W
Jay Powell also warns that America’s debt mountain needs reining in.Jay Powell also warns that America’s debt mountain needs reining in.
Our debt can’t grow faster than our economy indefinitely, the Fed chair says sternly, adding that “We will have to deal with it eventually”.Our debt can’t grow faster than our economy indefinitely, the Fed chair says sternly, adding that “We will have to deal with it eventually”.
Powell also insists that “deficits matter”; possibly a veiled criticism of the MMT movement.Powell also insists that “deficits matter”; possibly a veiled criticism of the MMT movement.
Q: You’ve gone from predicting two rate hikes this year to none, so is a rate cut possible?Q: You’ve gone from predicting two rate hikes this year to none, so is a rate cut possible?
Powell reiterates that the Fed will be patient before doing anything.Powell reiterates that the Fed will be patient before doing anything.
Powell: The data are not sending a signal that we should move in either direction on rates now (that is neither a rate hike nor rate cut)Powell: The data are not sending a signal that we should move in either direction on rates now (that is neither a rate hike nor rate cut)
Q: Why are your growth forecasts so much gloomier than the White House’s ones?Q: Why are your growth forecasts so much gloomier than the White House’s ones?
Powell ducks a direct comparison, speaking instead about the need to raise labour force participation across America and boost productivity too.Powell ducks a direct comparison, speaking instead about the need to raise labour force participation across America and boost productivity too.
“There’s no resolution of Brexit, there’s no resolution in the trade talks”, Powell adds, explaining why the Fed sees no reason to move interest rates anytime soon.“There’s no resolution of Brexit, there’s no resolution in the trade talks”, Powell adds, explaining why the Fed sees no reason to move interest rates anytime soon.
Q: How are global conditions affecting the US economy, and what impact are tariffs having?Q: How are global conditions affecting the US economy, and what impact are tariffs having?
Fed chair Jerome Powell says the global economy was a ‘tailwind’ in 2017, spurring US growth.Fed chair Jerome Powell says the global economy was a ‘tailwind’ in 2017, spurring US growth.
But now the European and Chinese economies have both slowed, meaning weaker global growth is now a headwind’ for the US.But now the European and Chinese economies have both slowed, meaning weaker global growth is now a headwind’ for the US.
Powell suggests that Beijing’s deleveraging programme is the main factor behind China’s slowdown, rather than tariffs.Powell suggests that Beijing’s deleveraging programme is the main factor behind China’s slowdown, rather than tariffs.
Powell then reveals that the Fed has heard a lot of concern from business contacts about tariffs (caused by Donald Trump’s trade war with China).Powell then reveals that the Fed has heard a lot of concern from business contacts about tariffs (caused by Donald Trump’s trade war with China).
Fed chair Powell: “tariffs may be a factor” in China’s economic slowdown but not biggest onetariffs “relatively small” in overall US economy but “fair amount of uncertainty. prominent concern” of businessFed chair Powell: “tariffs may be a factor” in China’s economic slowdown but not biggest onetariffs “relatively small” in overall US economy but “fair amount of uncertainty. prominent concern” of business
Another important point: The Fed is now planning to unwind its stimulus programme more slowly.Another important point: The Fed is now planning to unwind its stimulus programme more slowly.
From May, it will slow the pace of its bond sales (selling assets bought after the financial crisis), and will stop altogether in September.From May, it will slow the pace of its bond sales (selling assets bought after the financial crisis), and will stop altogether in September.
Financial blogger Frances Coppola says it’s another dovish move.Financial blogger Frances Coppola says it’s another dovish move.
Not only are interest rate rises off the agenda until 2020, the Fed is also slowing the pace of QE unwinding. Doves now in full flight.Not only are interest rate rises off the agenda until 2020, the Fed is also slowing the pace of QE unwinding. Doves now in full flight.
Growth has slowed notably in Europe and China, Jay Powell says.Growth has slowed notably in Europe and China, Jay Powell says.
He also identifies Brexit, and trade tensions, as other risks.He also identifies Brexit, and trade tensions, as other risks.
And these factors seems to be hitting the US economy, with retail sales weak over Christmas and business investment slowing.And these factors seems to be hitting the US economy, with retail sales weak over Christmas and business investment slowing.
Fed chair Jerome Powell is speaking to reporters now, explaining today’s decisions.Fed chair Jerome Powell is speaking to reporters now, explaining today’s decisions.
He says the US economy is in a good place, with a strong jobs market.He says the US economy is in a good place, with a strong jobs market.
But there are issues in the global economy that mean the Fed is taking a ‘wait and see’ approach.But there are issues in the global economy that mean the Fed is taking a ‘wait and see’ approach.
Donald Trump has criticised the Fed repeatedly for raising interest rates in 2018, and (previously) planning more in 2019.Donald Trump has criticised the Fed repeatedly for raising interest rates in 2018, and (previously) planning more in 2019.
He’ll be delighted to see that a growing band of investors now predict the next move will be a CUT.He’ll be delighted to see that a growing band of investors now predict the next move will be a CUT.
Futures traders are now pricing in a 47% chance of a rate cut by January 2020, up from a 36% chance ahead of today's 2pm Fed release. pic.twitter.com/5gNFuraCr0Futures traders are now pricing in a 47% chance of a rate cut by January 2020, up from a 36% chance ahead of today's 2pm Fed release. pic.twitter.com/5gNFuraCr0
Some reaction to the new, lower, growth forecasts:Some reaction to the new, lower, growth forecasts:
JP Morgan's David Kelly, asked on @cnbc whether the Fed's 2019 forecast of 2.1% growth or the Trump WH's 3.2% is more accurate: "This has always been a 2% economy"JP Morgan's David Kelly, asked on @cnbc whether the Fed's 2019 forecast of 2.1% growth or the Trump WH's 3.2% is more accurate: "This has always been a 2% economy"
US Federal Reserve downgrades US GDP growth in 2019 to 2.1% (from 2.3%). Well below 2018’s 3% and White House 2019 boosterism. Fed so concerned about weaker growth it’s indicated no interest rate rises in 2019 + stop rollback of QE in September.US Federal Reserve downgrades US GDP growth in 2019 to 2.1% (from 2.3%). Well below 2018’s 3% and White House 2019 boosterism. Fed so concerned about weaker growth it’s indicated no interest rate rises in 2019 + stop rollback of QE in September.
The Fed has also trimmed its growth forecasts, which helps explain why it no longer expects to raise borrowing costs this year.The Fed has also trimmed its growth forecasts, which helps explain why it no longer expects to raise borrowing costs this year.
2019: 2.1%, down from 2.3% in December2019: 2.1%, down from 2.3% in December
2020: 1.9%, down from 2%2020: 1.9%, down from 2%
2021: 1.8% (unchanged)2021: 1.8% (unchanged)
FED just now:-Rates unchanged-Dot plot sees no rate increases 2019- 9 members move their dot to zero- Fed says growth ``slowed": forecast lowered to 2.1%, down from 2.3%. Growth forecast for next yr just 1.9%- To stop shrinking balance sheet at Sept-endFED just now:-Rates unchanged-Dot plot sees no rate increases 2019- 9 members move their dot to zero- Fed says growth ``slowed": forecast lowered to 2.1%, down from 2.3%. Growth forecast for next yr just 1.9%- To stop shrinking balance sheet at Sept-end
Economics professor Justin Wolfers points out that the Fed still has an optimistic view of the US economy:Economics professor Justin Wolfers points out that the Fed still has an optimistic view of the US economy:
It's kind of a stunning set of Fed forecasts, and would have seemed almost unthinkable a decade ago, predicting unemployment below 4% for the next 3 years, but no inflationary pressures expected to emerge, even with interest rates staying below 3%.It's kind of a stunning set of Fed forecasts, and would have seemed almost unthinkable a decade ago, predicting unemployment below 4% for the next 3 years, but no inflationary pressures expected to emerge, even with interest rates staying below 3%.