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US Federal Reserve cuts interest rates to 'a good place' - live updates
US Federal Reserve cuts interest rates, sending Wall Street to record high - business live
(about 1 hour later)
Onto financial plumbing! Powell says the Fed is still looking at measure to help liquidity flow through the system, following recent liquidity problems.
And finally, here’s our economics editor Larry Elliott on today’s Fed rate cut:
Jay Powell then reminds the press conference of the big picture.
The US central bank has cut interest rates for the third time this year in an attempt to keep the longest running period of growth in the country’s history continuing into the crucial election year of 2020.
Three factors have weighed on the US economy: a global slowdown that began 18 months ago; trade tensions that have hurt exports and investment; the danger that low inflation pushes inflation expectations lower.
But the Federal Reserve put itself on a potential collision course with Donald Trump when it signalled to the financial markets that it had no immediate intention of cutting the cost of borrowing further.
But on the upside - the economy has kept growing, and the strong jobs market means there’s still a chance to get more people into work.
The president has put intense pressure on the Fed to boost the world’s biggest economy and his own re-election prospects by making aggressive cuts in the cost of borrowing.
The Fed is committed to extending this expansion, Powell pledges - thus today’s rate cut.
But the central bank’s chair, Jerome Powell, said there was a limit to what the Fed could do and that a more effective way to stimulate activity would be for Congress to loosen fiscal policy through spending increases or tax cuts.
Q: Might you raise interest rates in 2020 if the US-China trade war was resolved?
Here’s the full story:
An easing of trade tensions would have a positive impact, Jerome Powell replies.
Federal Reserve cuts US interest rates for third time this year
But the impact probably wouldn’t be immediate.
Goodnight! GW
He repeats that any interest rate rises will be dependent on inflation. So with core inflation just at 2% (the Fed’s target), the pressure isn’t there yet.
Ding ding! Wall Street has closed at a new all-time high, as traders welcome today’s cut to US interest rates.
Jerome Powell insists policy is now in a “good place”, following today’s rate cut to 1.5%-1.75%.
The benchmark S&P 500 index scaled new peaks -- up 10 points, or 0.3% to 2,046, a new record closing high.
#BREAKING Feds' Powell says cut interest rate as "insurance," policy now in "good place" pic.twitter.com/3ARdEUYdMw
The Dow Jones industrial average moved closer to its own record high too; gaining 116 points, or 0.4%, to 27,188.
Q: Are you planning to hold rates at current levels until you’re proved wrong, or poised to move either way?
But we’ll only know in the future if the Fed made the right call today.
Current stance will remain appropriate as long as the incoming data is consistent with our outlook, says Powell.
Edward Moya of trading firm OANDA says Powell may have blundered by saying rates are now in a ‘good place’:
That’s a hint that the Fed isn’t itching to cut interest rates again soon...
The Fed pretty much signaled they are in pause mode and will wait to see if we continue to see positive developments with the US-China trade war. The outlook on the economy was upbeat and this was unnecessary as they have given many hawkish hints that they could be closer to bending back toward rate increases. Inflation is anchored, albeit somewhat firmer recently, but nowhere near running the risk of running hot.
Q: What would it take to make you raise interest rates again?
Powell delivered a hawkish cut that has pretty much locked the Fed into keeping the rates on hold in December and possibly into the spring, despite huge geopolitical risks from the trade war and Brexit. A lot could go wrong in a moments notice and this may go down as huge policy mistake.
Rising inflation, Powell replies, but there’s no sign of it yet.
In summary: Jerome Powell’s message is that US interest rates may not be cut again soon, if the economy holds up.... and he certainly doesn’t expect to reverse today’s cut soon either.
“We’re not thinking about raising rates right now”
Fed Chair Jay Powell is a little bit hawkish in saying that the current funds rate is likely to remain appropriate. But he's massively dovish in saying that you'd need a "significant move up" inflation before the fed would consider raising rates.
Q: Today’s GDP report showed that US business investment has fallen for the last six months (as covered earlier). Is that a key risk?
Q: What do you make of Donald Trump’s claim today that America has its greatest economy ever?
Powell says that some risks, including Brexit and an escalated trade war, have diminished:
Powell lets this question whizz past his helmet, as he never responds to comments from elected officials.
It appears that the risk of a no-deal Brexit seems to have materially declined.
Here’s that tweet - maybe Trump will tweet about the Fed soon?....
There’s plenty of risk left, but it’s subsided.
The Greatest Economy in American History!
Q: Might firms start to cut jobs?
That’s the end of the press conference.
Powell agrees this is a risk, but there’s no sign of it yet.
Q: Does America risk a ‘Japanification’, if low interest rate expectations become entrenched?
Onto questions:
There are powerful disinflationary pressures in the world economy, and the US isn’t exempt, Powell replies.
Q: Is this the end of your rate-cutting cycle, or what would it take to prompt another cut?
The Fed takes this risk “very seriously”, so will use policy to keep inflation close to 2%, he adds.
Powell says the Fed has moved policy to be more accommodative this year, with three rate cuts in 2019.
Q: Do you share the IMF’s concerns that rising corporate debt levels could threaten financial stability?
It now expects today’s rate cut will help deliver moderate growth, a strong labour market, and inflation near 2%.
Leverage among corporations is historically high. We’re watching carefully and taking appropriate action, Jerome Powell replies.
“We’re going to watch all factors”, and if there’s a “material reassessment” of the situation, we’ll react, Powell adds.
Powell declines to swing at a curveball question on whether unions can play a stronger role tackling inequality (in the light of the strike at General Motors).
Powell also cautions that Fed policy is not on a ‘preset course’ - it will respond to the data, and to events.
Wall Street has got the message....
"Policy is not on a preset course." Do a shot! #fedpresserdrinkinggame"
Markets trimmed their expectations for interest rates to fall further this year after the Fed announced a 25bps cut and hinted that monetary policy may now be on hold, for one meeting at least. Next rate cut is expected in March or April at the earliest. pic.twitter.com/rQHTVN2yQp
Jerome Powell begins his statement by telling reports that he, and his colleagues on the FOMC, are dedicated to serving the American people.
Q: How does the Fed balance the divide between regions in the US, such as the rural-urban divide?
[a reaction to criticism from president Trump, perhaps?]
Monetary policy is a blunt tool, Powell freely admits. It can’t set different interest rates across the country.
Today’s interest rate cut is an “insurance” against ongoing risks facing the US economy, Powell continues.
Congress have responsibility for tackling long-term. challenges, such as income inequality, and differences in labor force participation rates.
He says the jobs market remains strong - something that has helped citizens to find employment and improve their lives.
Powell basically tells Congress to get its act together:"If you really want the US economy to be all it can be...you need proper monetary policy, but really it’s fiscal policy that supports inclusive growth."#economy #Fed
But he cites the current below-target inflation rates a danger - people could revise their inflation expectations down.
Stocks are moving higher on Wall Street, after Powell dampened the idea of a rate rise in 2020:
A slowdown in global growth, and trade tensions, are “ongoing risks”, Powell continues. So the Fed will continue to provide “significant support” to the economy.
Stocks extend gains as Powell says the Fed would need to see a ‘really significant’ rise in inflation before hiking rateshttps://t.co/G2uTDlSifZ pic.twitter.com/WSYpVNS2P2
Jay Powell, chair of the US Federal Reserve, is holding a press conference now to explain today’s decision.
You can watch it live here:
WATCH LIVE TODAY: Press conference with #FOMC Chair Powell at 2:30 p.m. ET: https://t.co/R5jdupvACQ https://t.co/FJa6TbkDMt pic.twitter.com/4CtqNeRnbb
Here’s some instant reaction to the cut in US interest rates:
BREAKING: Federal Reserve cut interest rates a quarter point and signaled wait-and-see mode going forward.Interest rates are now: 1.5 to 1.75% (lowest since spring 2018)The Fed deleted the part of statement saying the Fed “will act as appropriate to sustain the expansion”
Richard Flynn, Managing Director at Charles Schwab:
“Today’s rate cut will provide a much-needed boost to the US economy, as the global slowdown continues to bite. However, as has been proven by the lack of positive recent economic data, subdued consumer confidence and even weaker business confidence, we continue to believe rate cuts are not the elixir for what ails the economy.
“Despite the cut, investors should not ignore ongoing macroeconomic risks, as geopolitical tensions remain unresolved. Trade war, Brexit, and the disruption in Hong Kong pose significant threats to the US economy. Further, the manufacturing sector’s deterioration in September, along with weakness on the services side, and dysfunction in Washington have kept stocks within a tight trading range.
There was zero chance the Fed in this situation was going to give up any of its optionality from here.
Candice Bangsund, Vice President and Portfolio Manager, Global Asset Allocation, Fiera Capital:
“As widely expected, the Fed met the market’s expectations with a 25 bps cut. The accompanying statement conveyed a subtle compromise for the hawks and the doves regarding the future trajectory for policy.
In a surprising hawkish-leaning development, the Fed removed the statement that policymakers will “act as appropriate” – though the Fed cushioned the blow somewhat and reinforced that policymakers are not on a preset path and will continue to monitor income economic data.
FOMC Reaction: Boring! 25bps cut & expected pause unless US data negatively surprises in Nov. Wouldn't rule out Dec rate cut (US investment worrying volatile GDP component). But this is an FX market wanting Fed liquidity action (marginal cuts irrelevant). $JPY barely cares... pic.twitter.com/Y1QBODS4Vl
Michael Swell, Co-head of Global Fixed Income Portfolio Management, Goldman Sachs Asset Management:
“Central banks have contended with an unusual environment proactively over the past year, with policy responding to a trade shock as well as continued low inflation and tight labor markets.
Following today’s rate cut, we think insurance has been delivered to markets and the Fed’s policy path now depends on the evolution of US economic data and US-China trade relation
Here’s the full statement from the Federal Reserve, explaining why policymakers have cut borrowing costs today (by 8 votes to 2) to a 1.5%-1.75% range.
As you can see, the Fed believes the US jobs market remains strong, and household spending is growing too -- but business investment and exports are weak.
So, with inflation muted, the Fed feels a rate cut is justified.
Federal Reserve issues FOMC statement
Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Federal Open Market Committee statement: https://t.co/aql1RzrpcS #FOMC
The Federal Reserve has also signalled that it may pause its rate-cutting cycle soon.
It has adjusted the language in its monthly statement, and dropped a pledge to “act as appropriate” to ensure that the US economic expansions continues.
Instead, the Fed now says it will “monitor the implications of incoming information for the economic outlook”.
That sounds like a softer commitment... Donald Trump may not be happy....
The decision is not unanimous.
Two Fed policymakers, Esther George and Eric Rosengren, voted not to cut interest rates today.
Newsflash: The US Federal Reserve has cut interest rates, by a quarter point.
America’s central bank has lowered the target range for its key interest rate by 25 basis points to between 1.5% and 1.75%.
That’s down from 1.75%-2% previously.
More to follow!
Fed chair Jerome Powell’s press conference, in 30 minutes time, will be crucial.
John Bellows, portfolio manager at Legg Mason affiliate Western Asset predicts Powell will strike a dovish tone:
We think the Fed will reiterate the dovish arguments that have led to the interest rate cuts this year. That includes an emphasis on “sustaining the expansion”, a discussion of slowing growth, and an admission that inflation is too low. These dovish points would come as a surprise to analysts who are expecting a more hawkish message, and certainly would surprise anybody expecting a strong signal from the Fed that it is done cutting.
“It’s essential to remember the broader economic context here in the US. Tomorrow we will get the latest data on inflation with the consensus expectation that year-over-year core inflation will be around 1.7%, still stubbornly below the Fed’s 2% target and only marginally higher than the lows a few months ago.
Tension is building in the markets ahead of the Federal Reserve’s decision on interest rates, in 10 minutes.
Investors widely expect the Federal Reserve to ease monetary policy, given concerns that the US economy may be slowing -- and heavy pressure from the White House.
However, today’s GDP report has shown that America is still expanding at a steady rate - almost 2% per year.
That means the Fed may deliver a ‘hawkish cut’ - lowering borrowing costs while hinting that rates won’t be cut much lower...
It's almost Fed time! I met with Tony Rodriguez, head of fixed income strategy at @NuveenAssetMgmt, earlier today to talk about what to expect. Says rate cut is guaranteed but that Fed/Powell will strongly suggest no rate cut in December. That doesn't mean the Fed is done though.
Rodriguez of @NuveenAssetMgmt says he thinks Fed will hint at one more cut in first half of 2020. And then that will be the end of the rate cut cycle.
Time for a quick recap, before the drama of the Federal Reserve decision (at 6pm UK time or 2pm East Coast).
America’s economy has grown faster than expected. GDP expanded at an annualised rate of 1.9% in July-September, very slightly slower than the 2% recorded in April-June.
But while consumer spending rose, business investment contracted for the second quarter in a row . This pulled quarterly growth to its second lowest level of the Trump era.
France’s economy also beat forecasts this morning, with quarter-on-quarter growth of 0.3% in Q3. Economists believe the French economy is outpacing the rest of the eurozone.
The Economist Intelligence Unit predicts that Germany is falling into recession, while the UK may manage some growth in the last quarter (we’ll find out next month!).
Worryingly, economic and consumer confidence in the euro area has fallen to its lowest level in several years, as households and businesses grow more pessimistic.
The French owner of Peugeot and Vauxhall are in merger talks with US-Italian carmaker Fiat Chrysler. UK unions worry that Vauxhall’s factory in Ellesmere Port, in the North West of England, could be affected.
