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With the press conference over, Anna Stupnytska, global economist at Fidelity International, says Powell struck a more doveish tone than expected:
The US Federal Reserve hiked rates at the September meeting, as widely expected. The overall tone of the statement was upbeat, although Chairman Powell chose to strike a relatively dovish tone at the press conference, presumably making room for more flexibility around the future policy path given the multitude of uncertainties.
Read Chairman Powell's opening statement from the #FOMC press conference (PDF): https://t.co/iftM7Bdusx
— Federal Reserve (@federalreserve) September 26, 2018
Powell on trade war: we don't see much impact on the US economy yet
“It’s hard to see much happening at this point”, Powell says, when asked about the impact of trade tensions between the US and China.
He says there are areas of concern however: loss of business confidence, which doesn’t appear to gave materialised yet, and financial market reaction over the longer term.
The main worry, Powell says, is “where is this going?”
Powell says the Fed is constantly weighing up the risk between moving too quickly to raise rates and therefore snuffing out the recovery, and moving too slowly, therefore allowing the economy to overheat.
That’s why the central bank is moving gradually, he says.
Jerome Powell, chairman of the Federal Reserve is giving a press conference. He begins by outlining the strength of the US economy.
He says the financial system is now stronger and better placed to deal with a shock than it was pre-crisis.
The Fed’s latest growth projections show the US economy continuing at a steady pace through 2019, with GDP growth forecast at 2.5% next year before it slows to 2% in 2020 and to 1.8% in 2021, as the impact of the recent tax cuts and government spending fade.
David Herrick, chief executive of Moneycorp’s US business, says the markets had priced in today’s rate hike:
The dollar and wider financial markets have had a muted reaction to today’s second straight quarter of dollar-supportive rate rises from the Fed.
The market outlook is for these to continue through the final quarter of this year and into 2019 as the economy strengthens.
Reaction to the Fed decision by Kully Samra, UK Managing Director of Charles Schwab:
This hike follows strong GDP figures for the first half of the year and yet again demonstrates the Fed’s faith that it can continue to raise rates gradually without slowing economic growth.
Trade concerns are being counter-balanced by wage inflation, with average hourly earnings rising 2.9% year-over-year as of August. These numbers were welcomed in the latest jobs report and crucially do not suggest over-heating, meaning the Fed has little need to crimp economic growth.
A December hike seems likely, but the likelihood could ebb and flow depending on incoming economic data between now and then.
Dollar drops, stocks move higher after the Fed hikes https://t.co/SraUo4rJXp pic.twitter.com/Cw2lMhKOM2
— Bloomberg Markets (@markets) September 26, 2018
Here is what the Fed policymakers had to say:
Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low.
Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.
The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.
The Fed has removed the key term “accommodative policy” from its accompanying statement, signalling more rate hikes to come.
The central bank’s dot plots show 12 of 16 officials favour four rate hikes in 2018, making another US rate rise in December likely.
Fed raises its economic growth outlook for this year and next. Dot plots suggesting 3 more rate hikes next year as well. https://t.co/m6hLixaYZJ
— Paul R. La Monica (@LaMonicaBuzz) September 26, 2018
Breaking: Fed raises interest rates for third time this year
The Federal Reserve has raised US interest rates by 0.25 points, to a range of 2-2.25%, as expected.
Federal Open Market Committee statement: https://t.co/M63ecS10I3 #FOMC
— Federal Reserve (@federalreserve) September 26, 2018
Updated
FOMC in 6 minutes.... pic.twitter.com/fvehrf7loE
— RANsquawk (@RANsquawk) September 26, 2018
Chancellor announces budget day: Monday 29 October
In other news, the chancellor, Philip Hammond has announced the budget date, which is Monday 29 October.
Budgets traditionally take place on a Wednesday, but the chancellor has selected a data to make sure it does not clash with the final stage of Brexit negotiations in November.
I’m pleased to announce the Budget will take place on 29 October.
— Philip Hammond (@PhilipHammondUK) September 26, 2018
I’ll set out how our balanced approach is getting debt falling while supporting our vital public services, and how we are building a stronger, more prosperous economy. pic.twitter.com/FKafI3kLO9
Expect the Federal Reserve to raise interest rates for the third time this year—and publish forecasts projecting another move in December pic.twitter.com/VbGGARsapU
— TicToc by Bloomberg (@tictoc) September 26, 2018
Investors on both sides of the Atlantic await the US Fed decision tonight, but most will be more interested in the Fed’s “dot plot”, showing where policymakers thinks rates are going in future months.
Neil Wilson at markets.com explains:
The Federal Reserve will raise rates today – that much is certain. There is a roughly 95% chance of the fed funds rate moving up to the 2-2.25% target, which means the decision itself is well baked in to market pricing. This would be the third interest rate rise this year and indicators still point firmly towards a fourth by December.
Therefore, market attention is on a number of other elements contained in both the projections (dots) and the monetary policy statement.
The key question is what monetary policy in 2019 looks like. Currently the median dot plots point to three hikes in 2019 but there are a number of factors that might tempt the Fed to slow its pace next year. The fiscal put should start to lessen, while tariffs could impact on its forecasts for growth. However a lot depends on the extent to which the Fed sees tariffs pushing up prices as well.
Similarly, quite why the Fed would slow up its pace of tightening from its June projections seems unclear. The question really is what has changed in the intervening months to make it beat a more dovish drum. The answer is, with the exception of further concerns about trade, precious little.
Wall Street opens (slightly) higher
US markets edged higher on the opening bell:
- Dow Jones: +0.1% at 26,521
- S&P 500: +0.1% at 2,918
- Nasdaq: +0.1% at 8,017
CBI: Labour lacks business experience and workable policies
Carolyn Fairbairn, CBI director-general, says that Labour is thinking up policies that work on paper but not in reality because the party lacks business experience.
Responding to Jeremy Corbyn’s closing speech at the Labour Party Conference, Fairburn said:
Much of Labour’s vision for a more sustainable and fair country is absolutely right. Business not only supports it but holds many of the keys to making it a reality.
From onshore power to affordable childcare, the Labour leader’s speech echoes calls from firms for more action on climate change and to unlock productivity.
But this will only happen if Labour invites business into the tent. Continual public barbs and backward-facing policy are deterring entrepreneurs and investors, at a time when we need them most. Profit and enterprise are the basis of jobs and growth, with firms paying enough tax to fund the NHS every year and much more besides.
Too often lack of business experience in the Labour Party fuels ideas that are appealing on paper or conference platforms, but unworkable in reality. Far better to take up business’ open offer to work together. Far better to recognise and build on strides already made, from cutting emissions in the power sector by half since 2010 to employee ownership schemes already operating in almost 9 out of 10 FTSE 350 firms.
Policy built collaboratively will help build a fair, progressive and pro-enterprise Britain. Policy built on ideology and diktat will do the opposite. They will harm those who can least afford it by driving down investment, productivity and pay.
US futures are higher ahead of tonight’s expected Fed rate hike, with bank shares among the gainers.
Shares in JP Morgan, Citigroup, Wells Fargo and Bank of America were all up as policymakers prepare to announce what would be the third US rate rise in 2018.
Here is how markets look across Europe:
- FTSE 100: -0.1% at 7,499
- Germany’s DAX: -0.2% at 12,346
- France’s CAC: 0.3% at 5,493
- Italy’s FTSE MIB: -0.3% at 21,593
- Spain’s IBEX: -0.2% at 9,511
- Europe’s STOXX 600: flat at 384
More on the AA, which has blamed a UK “pothole epidemic” caused by the “beast from the east” and low road maintenance spending for a sharp fall in half-year profits.
The roadside assistance service had to deal with 1.91m breakdowns in the six months to July, up 8% from a year earlier. The AA estimates that potholes are costing drivers and their insurers at least £1m a month due to big car repair bills.
The Local Government Association says councils are fixing a pothole every 21 seconds but it will still take more than £9bn and more than a decade to clear the local roads repair backlog completely, after decades of underfunding.
The government’s austerity programme since the financial crisis made things worse. Councils have had their real spending power (government funding plus council tax) reduced by 29% between 2010/11 and 2017/18.
Simon Breakwell, the AA chief executive, said this morning:
We’ve had a 15-year high in breakdowns, we had the worst winter back to back with the hottest summer, all of which causes everyone to drive their cars and more cars on the road generally means more breakdowns.
Sometimes you have a rubbish winter and sometimes you have a really hot summer but it’s rare that you have a rubbish winter back to back with the hottest summer.
Oil prices have eased off today, but are still on course for a fifth consecutive quarterly gain as Iran sanctions keep prices at near late 2014 highs.
Brent crude is down 0.3% or 24 cents at $81.63 a barrel, having risen to $82.55 on Tuesday.
High street sales growth dampens in September
Retail sales growth slowed less than expected in September, according to the CBI’s monthly survey of the sector.
Of the retailers surveyed, a balance of +23% said sales were up compared with a year ago. That was down from +29% in August, but better than the +16% predicted by City economists.
However, the business lobby group cautioned the outlook for retailers was tough in the months ahead, as consumer finances remain under pressure and business costs rise.
Anna Leach, CBI head of economic intelligence, said:
As we head into Autumn, retailers have seen the run of decent sales figures continue. But underlying conditions are clearly tougher, with the sector facing significant challenges – from squeezed household incomes, changing consumer habits to digital disruption.
So, policymakers must be conscious that times are harder for retailers than recent data suggests. With the burden of business rates stifling investment – against the backdrop of an already tough trading environment – the Government must deliver a review of the system over the coming year.
Updated
A Fed rate hike this evening is already old news before it’s happened, with investors pricing it in as a certainty.
Instead they will be turning their attention to the months ahead, with traders listening out for clues on whether or not the next hike will come in December.
Fed dots to harden views for December move: Decision-Day Guide https://t.co/tL6T7vHpaU
— Bloomberg Economics (@economics) September 26, 2018
The pound is lower this morning as investors remain cautious about prospects for Brexit negotiations between the UK and the EU.
It had recovered in recent sessions after the biggest one-day loss since 2016 on Friday, when Theresa May said talks were at an “impasse”.
The pound is currently down 0.1% against the dollar at $1.3163 and down 0.1% against the euro at €1.1187.
Updated
UK mortgage approvals fall in August
Britain’s high street banks approved 42,581 mortgages for house purchase in August, which was 4.3% fewer than the same month last year.
It was also down on July, when 43,967 mortgages were approved according to the figures from the banking trade body, UK Finance.
Remortgaging increased however, by 9.2% to 32,457, as home owners took advantage of a competitive market with some decent deals.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said lenders were competing for customers as potential home movers become more cautious ahead of Brexit:
With many would-be buyers holding off making a decision until Brexit is resolved one way or another, lenders are battling for a relatively small pool of borrowers and are having to reduce rates accordingly.
Barclays, HSBC, Halifax and TSB are among the big names to have reduced the cost of fixed-rate mortgages recently, and we expect this trend to continue as lenders try to boost business before the end of the year.
Updated
In case you missed it... the governor of Argentina’s central bank, Luis Caputo, resigned unexpectedly on Tuesday after just three months in the job.
Caputo quit just as Argentina is negotiating emergency financial support from the IMF, initially sending the peso down 7%, before trimming some of the losses.
Investor concern over economic prospects and debts in Argentina have sent the peso down more than 50% this year, and inflation is expected to top 40%.
The central bank said in a statement:
This resignation is due to personal reasons, with the conviction that a new agreement with the International Monetary Fund will reestablish confidence in the fiscal, financial, monetary and exchange rate situation.
However, Paul Greer at Fidelity was not convinced:
The timing could not be worse for Argentina. Caputo’s resignation will only add to investor uncertainty.
The FTSE 250 index, which tends to include firms that are more focused on the domestic market in the UK than those in the FTSE 100, is also down this morning, by 0.2% at 20,422.
It’s biggest faller is the AA, with shares down 8.4% at 109p after it blamed a plunge in first-half profits on Britain’s “pothole epidemic”.
European markets edge lower
Major markets across Europe are down this morning, after Wall Street closed lower on Tuesday.
Investors will be cautious ahead of the Fed decision and more importantly its signals for future policy decisions, but markets are also subdued after President Trump’s “America First” message at the UN.
The latest scores:
- FTSE 100: -0.1% at 7,500
- Germany’s DAX: -0.1% at 12,365
- France’s CAC: -0.1% at 5,474
- Italy’s FTSE MIB: -0.4% at 21,586
- Spain’s IBEX: -0.02% at 9,492
- Europe’s STOXX 600: -0.1% at 383
AA blames profit plunge on UK 'pothole epidemic'
The AA has said this morning that the “beast from the east” earlier in the year triggered a “pothole epidemic” in the UK, and contributing to the highest number of vehicle breakdown call outs in 15 years.
The breakdown recovery service said the trend drove pre-tax profits down 65% in the six months to 31 July, to £28m.
Simon Breakwell, AA chief executive, said:
The first half of the financial year has seen exceptional weather conditions, from extreme cold and snow in February and March to the hottest summer in recent memory, with the severe winter also creating a pothole “epidemic” on the UK’s roads. All this led to a 15-year high in the number of breakdowns we serviced.
Against this backdrop, I am extremely proud of our achievements and to be reporting results in line with our guidance as we continue to build resilience throughout the business.
Full story here:
A rate hike from the Federal Reserve today would be the eighth one since December 2015, Michael Hewson from CMC Markets notes.
The only G7 central bank that has come anywhere close to this level of tightening of monetary policy has been Canada which has seen four rate rises over the same period.
Despite these rate rises, US and Canadian markets have managed to remain close to recent record highs, despite concerns over a break down in the NAFTA trade deal and the start of a fresh round of tariffs this week in the current trade stand-off between the US and China.
If the FOMC is particularly aggressive in terms of its rate outlook, and in terms of its assessment of the health of the US economy, then we could well see further US dollar strength in emerging market currencies.
If on the other hand they are more cautious and signal it may be time for a pause then the US dollar could come under additional pressure, given recent weakness.
The agenda: Investors await Fed decision
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s Fed decision day, and investors are pricing in the third US rate hike of the year, as the central bank’s chairman Jerome Powell and his colleagues continue to displease President Trump who has said he is not happy with the rate rises.
The decision will be announced at 7pm UK time, and anything other than a rate hike will come as a major shock to markets.
The dollar index, which measures the US currency against a basket of other major currencies, is edging higher ahead of the decision.
Fed likely to raise rates, possibly end 'accommodative' policy era https://t.co/ASX9OmyIsh
— Reuters Top News (@Reuters) September 26, 2018
What investors really want to know is, what does the Fed have planned next?
Jasper Lawler, from London Capital Group, explains:
The Fed are widely expected to hike 25 basis points to 2.25%, in the 3rd hike of the year. Whilst this hike is almost completely priced in and another in December over 76% priced in, investors will be turning their attention to next year.
In June, the Fed indicated 3 hikes across 2019 and these are expected to be carried out one per quarter, for the first three quarters. This leaves traders wondering what the Fed have planned thereafter?
A hawkish plan could re-ignite the dollar rally, whilst suggestions of a slow down in the pace of hiking or that the Fed is coming to the end of its cycle next year, could bring the dollar tumbling lower.
Also coming up today...
- 9.30am BST: UK mortgage approvals data for August
- 11am BST: CBI distributive trades survey for September, which give a snapshot of the UK retail sector
