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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden (now) and Nick Fletcher

Janet Yellen: US interest rate rise 'vote of confidence' in economy – as it happened

Federal Reserve Board Chair Janet Yellen listens to a reporter’s question during today’s news conference about the Federal Reserve’s monetary policy.
Federal Reserve Board Chair Janet Yellen listens to a reporter’s question during today’s news conference about the Federal Reserve’s monetary policy. Photograph: Alex Brandon/AP

Closing summary: Trump casts a cloud over the Fed's big day

Federal Reserve Board Chair Janet Yellen speaks during today’s news conference.
Federal Reserve Board Chair Janet Yellen speaks during today’s news conference. Photograph: Alex Brandon/AP

We’ve waited a whole year for the Federal Reserve to raise interest rates. And when the big day arrived, the shock result of last month’s US presidential election rather overshadowed it.

So what did we learn?

1) Fed chair Janet Yellen insisted that the US economy was in decent shape, as America’s central bank delivered its first hike in borrowing costs since December 2015.

She said:

“Our decision to raise rates should certainly be understood as a reflection of the confidence we have in the progress the economy has made and our judgment that that progress will continue.

It is a vote of confidence in the economy.”

But this sunny view didn’t last long, with Yellen admitting during the press conference that the Fed was operating under a ‘cloud of uncertainty’, until it knows more about what Donald Trump will do.

2) In the nicest way possible, Yellen indicated that the labour market was doing fine, thanks, without Trump’s plan for a $1 trillion infrastructure plan.

She said:

There may be some additional slack in labor markets, but I would judge that the degree of slack has diminished. So I would say at this point that fiscal policy is not obviously needed to provide stimulus to help us get back to full employment.

But nevertheless let me be careful that I am not trying to provide advice to the new administration or to Congress as to what is the appropriate stance for policy. There are many considerations that Congress needs to take account of and many bases for justifying changing fiscal policy.”

3) Fed press conferences can be quite dry affairs, but Yellen’s most stirring moment came as she defended recent regulations brought in since 2008.

Asked about Trump’s pledge to roll back these rules, Yellen reminded us that Dodd-Frank was introduced to avoid another “devastating financial crisis”

“I would say it’s very important not to roll back. There maybe some changes that could be made and we’ve suggested a few, like eliminating the burden of compliance with the Volcker rule or incentive compensation regulations for smaller banks or modestly raising the threshold for banks that are subject to enhanced credential supervision.

But I would urge that it’s important to keep this in place.”

4) Yellen found herself in Trump’s crosshairs several times during the election campaign, but she’s not planning on quitting the Fed earlier.

Asked about her own future, the Fed chair indicated she was going nowhere until her first term expires in 2008:

“I do intend to serve out my four-year term. I haven’t made any decision about the future. I recognize I might or might not be reappointed. It’s a decision I don’t have to make and don’t have thoughts on at this time. As you said I recognize too thatI could stay on as a board member, and that’s a decision for another day.”

5) Markets react, despite Yellen’s calming words.

Janet Yellen took some pains to insist that the Fed hasn’t radically changed its approach, even though it now expects an extra rate hike next year (three, not two).

This is a very modest adjustment in the path of the fed funds rate, and involves changes by only some of the participants.

But with shares down, and the dollar rallying, investors may have concluded that Trump’s election win changes the monetary policy landscape.

Here’s a little more reaction:

And that’s all from us after a busy day on both sides of the Atlantic. We’ll be back tomorrow for more Fed reaction, the Bank of England’s final policy meeting of 2016, and possibly more bailout drama in Greece.

Goodnight, and thanks for reading and commenting. GW

Traders on the floor of the New York Stock Exchange today.
Traders on the floor of the New York Stock Exchange today. Photograph: Spencer Platt/Getty Images

You can take off the Dow 20,000 hats, folks.

The US stock market has closed in the red, with the Dow Jones index shedding 0.6% to finish at 19,792, a drop of around 118 points.

The wider S&P 500 lost 0.8%, while the Nasdaq handed back 0.5%.

That shows that the Fed was more hawkish than Wall Street expected, or wanted.

Here’s Wall Street correspondent Rupert Neate on today’s developments:

The US Federal Reserve on Wednesday raised interest rates for the first time in a year, and only the second time since the 2008 financial crisis. The US central bank also predicted three further rates increase in 2017, up from previous expectations of two rate hikes.

Janet Yellen, the Fed chairwoman, said “growth is a touch stronger, unemployment is a shade lower” as she announced a 0.25% increase in the benchmark rate to 0.50-0.75%.

It is the first time rates have been raised since December 2015 when the benchmark rate was lifted from near-zero for seven years since the crisis.

“My colleagues and I are recognizing the considerable progress the economy has made towards our dual objectives of maximum employment and price stability,” Yellen said.

“We expect that the economy will continue to perform well, with the job market strengthening further, and inflation rising to 2% over the next couple of years.”

More here:

Updated

Capital Economics are even more bullish than the Fed, and expects FOUR interest rate rises next year.

That’s partly due to Donald Trump’s plans for a fiscal stimulus package (even though Yellen argues that the labour market doesn’t need the extra help).

Capital Economics analysts say:

As universally expected, the Fed today raised interest rates for the second time in this economic cycle, with that hike coming a full year after the first increase and more than seven years after the current expansion began.

With the economy much closer to full employment now and a strong likelihood of a fiscal stimulus next year, however, we expect the Fed to accelerate the pace of tightening next year, with one rate hike in the first half of next year followed by three in the second half.

Dean Turner, Economist at UBS Wealth Management, says we shouldn’t underestimate the importance of today’s rate hike:

“While this was universally expected, we shouldn’t forget that this is still a big milestone.

It marks only the second interest rate increase in a decade from the Fed. The Fed’s anticipation of a faster pace of hikes (three next year vs two previously) and the nudge up in the long-run rate forecast to 3% shows that confidence in the growth outlook is increasing”

Investors are also dumping US government debt, sending the interest rate (or yield) on Treasury bills higher.

Yields rise when prices fall, so traders are concluding that the Fed was more hawkish about monetary policy than expected (because it now expects three rate rises next year, up from 2 in September)

Markets in the red after Yellen speaks

I”ll post a snap summary of Yellen’s press conference next.

In the meantime, shares have fallen on Wall Street over the last 90 minutes as investors digest the Fed’s rate hike and guidance for 2017.

All the main indices are in the red, which means anyone hoping to see the Dow Jones smash through 20,000 points today will be disappointed.

The US markets today
The US markets today Photograph: Thomson Reuters

The dollar continues to rally, though, as traders react to the Fed’s forecast for three rate hikes in 2017.

It’s up one whole cent against the euro, which has dropped to $1.052.

Yellen: We can't solve economic inequality

And finally, we get another question about the US election...

Q: Many people are angry about the economy, even though the aggregate performance levels seem pretty good. So are you reevaluating how you see the economy?

Yellen says she has long been worried about income inequality, wealth inequality, and the fact that many families haven’t seen real wage gains.

These are long-standing concerns. These are not new phenomenons, but the recession was very severe and probably exacerbated them.

And the Fed chair insists that central bankers can’t solve these problems -- this is one for politicians.

Our policies can affect the overall levels of economic activity, the inflation rate, but policymakers must be alert to these issues, she adds.

Yellen then singles out the unemployment level among black and African American workers is higher than the average, before ending the press conference and heading to the door.

Q: virtually every economist expected a rate rise today - does the Fed need that level of certainty before taking the plunge?

Yellen says this is “not a prerequisite”.

Yellen: I want to serve my full term

Q: You have been criticised by Donald Trump several times, so are you still planning to serve your full term, and would you like a second term?

Yellen must have known this would come up; and, smiling politely, she says she would still like to serve her full term (it expires in 2018).

She’s not considered if she would like a second term, and if she would still serve on the Fed board otherwise.

I recognise that I may or may not be reappointed as Fed chair, Yellen adds.

Updated

Yellen: We're operating under a cloud of uncertainty

Q: Did you discuss Donald Trump’s economic plans at this week’s meeting, and the effect that his victory has had on the financial markets?

Yellen reveals that the FOMC did indeed talk about this.

All the participants agreed there was considerable uncertainty about how economic policies will change, she says, adding:

We are operating under a cloud of uncertainty at the moment.”

Updated

Yellen defends financial regulations

The next question is also about Donald Trump, and his pledge to scrap some financial regulation, such as the Volcker Rule (which stops banks making riskier bets with their own money).

Yellen launches a strong defence of the measures taken in recent years, saying:

We lived through a devastating financial crisis that took a huge impact on our economy.

Most policymakers came away from that crisis thinking we must take steps to avoid a repeat, and “I feel we have done that”, she adds.

Q: What do you think about Donald Trump’s tweeting, and his attacks on individual companies? (such as Boeing and Lockheed Martin)?

I’m not about to offer the president-elect advice, says Yellen.

But she’s not rolling over either, saying “I’m a strong believer in the independence of the Fed”.

Q: Why is it riskier to run ‘hot’ fiscal policy to strengthen the economy and drag more people into the labour market, rather than relying on monetary policy?

[Another question about Donald Trump’s infrastructure spending ideas]

Yellen insists that she has never favoured “running a high-pressure economy”.

Asked again about potential tax and spending changes, Janet Yellen says that there’s no obvious need to change fiscal policy to get America back to full employment.

But she insists that she is not trying to provide advice to the new administration, or to Congress.

Some snap reaction to today’s press conference.

This is from Sky News’s Ed Conway:

Here’s Meg Greene, economist at Manulife:

And here’s Neil Irwin of the New York Times:

Yellen: Rate hike is 'vote of confidence' in US economy

Q: What will today’s rate hike, and three more rate rises in 2017, mean for US families?

Yellen says today’s interest rate rise reflects the Fed’s confidence in the economic recovery. The economy has been remarkable resilient, she says, adding:

It is a vote of confidence in the economy.

Households and firms will see very modest changes from this decision, she says.

Q: Would tax cuts boost the productivity of the US economy? And how would the Fed react to new policies that improve productivity growth, or didn’t?

Yellen says policies that boost education, improve the quality of capital, or encourage innovative new companies would all boost the productive potential of America’s economy.

Q: Do would you have to raise rates faster if we saw fiscal policies that do not improve productivity?

Yellen won’t speculate about potential policy changes.

Updated

Onto questions:

Q: Why is the Fed now expecting three interest rate rises, not two? Is it because of the economy, or because of Donald Trump?

Fed chair Yellen says there is only a “very modest change” in the forecasts, with only a couple of policymakers changing their view (by moving their dot on that chart I showed earlier)

Updated

Yellen: Fiscal policy could change the picture

Looking ahead, Yellen expects that the US economy will only warrant “gradual rate increases”.

And then she touches on politics, saying that:

Changes in fiscal policy, or other policies, could potentially affect the economic outlook.

That’s a coded reference to Donald Trump’s plans for an infrastructure spending boost once he takes office.

Yellen rattles through the Fed’s latest economic projections, before concluding that they are “very similar” to September’s ones.

GDP growth is a touch stronger, unemployment is a shade lower, and inflation is unchanged, she declares.

Over the past seven years, since the depths of the US recession, 15 million new jobs have been created, the Fed chair tells reporters.

On inflation, Yellen reminds us that consumer prices rose by an annual rate of 1.5% in October, up more than one percentage point over the last year. And core inflation (excluding fuel and food) came in at 1.75%..

Janet Yellen begins by confirming that the Fed raised interest rates by a quarter point today, to 0.5%-0.75%.

She says that 2.25 million net new jobs have been created in the last 12 months, the labour market has improved, and inflation has moved closer to the Fed’s 2% target.

We expect the economy will continue to perform well, she adds.

Watch Janet Yellen's press conference here

Janet Yellen has just arrived at today’s press conference, to explain why the Fed has raised interest rates today.

Here’s a live feed (I’ve also added it to the top of this liveblog)

Click play to watch Janet Yellen’s press conference

Trump 'forced Fed to predict faster rate hikes'

Donald Trump’s plans for an aggressive fiscal spending plan have forced the Fed to predict faster rate hikes next year.

So argues Lee Ferridge of State Street Global Advisors:

“As widely expected the FOMC delivered the second rate hike in this cycle, precisely 12 months after its first move. However, in a major surprise it increased its expectations for the likely rate path in 2017 to three hikes rather than the two forecast following its September update.

It seems that in light of the forthcoming Trump fiscal stimulus plan and, signs of both rising price pressures and inflation expectations (helped by the recent OPEC decision to cut oil output) the Fed felt that it needs to adopt a more aggressive rate hiking path.

Nancy Curtin, chief investment officer at Close Brothers Asset Management, says today’s rate hike is a “vote of confidence” in the US economy.

But she also cautions that the economic outlook is still ‘finely balanced’:

Though unemployment is at a nine year low, wages and the participation rate have recently come in flat, which should give some reason for caution. The economy is not yet firing on all cylinders.

This trend will likely be observed closely in the New Year, particularly if inflation continues to run below its 2% target, and we might expect Yellen to look for more sustainable labour market improvements before further rises.

Ian Kernohan, Economist at Royal London Asset Management, expects the Fed to tread cautiously, until Donald Trump has made his tax and spending plans clearer.

“Today’s Fed rate hike was long anticipated, so there was no surprise when it came. Attention will now turn to the outlook for monetary policy in 2017. We do expect a sizeable fiscal stimulus to be announced next year; however the size and shape of that package may not be visible for some time.

“As a consequence, we expect the Fed to remain cautious on the pace of rate hikes, at least in the first half of next year. The post-election rise in the dollar and bond yields also adds weight to arguments for a cautious approach.”

Here’s some snap reaction to the decision, starting with Michelle Jamrisko of Bloomberg who remembers how the Fed’s forecasts were wrong last year:

Here’s the Fed’s new dot plot - showing where its policymakers expect interest rates to be over the next few years:

US dot plot

As you can see, a majority of policymakers expect three rate rises in 2017 (that’s the widest collection of dots in the second column).

There’s more uncertainty about 2018 and 2019 (which is why the dots are more scattered).

Note that one policymaker expects only one rate hike next year, and none in 2018 and 2019! (that’s the lonely dot that lags behind the rest).

The dollar has strengthened, after the Fed’s ‘dot plots’ predicted three rate hikes in 2017.

It has gained 0.6% against the euro, meaning €1 is now worth $1.056, down from $1.062.

Shares moved wildly on Wall Street as the Fed decision hit the wires, but things quickly calmed down.

The Dow Jones Industrial Average nearly hit 20,000 points, but is now up just 0.12% at 19,936.

Fed statement: the key points

The Federal Reserve says it has raised borrowing costs because the US economy has continued to strengthen.

In today’s statement (online here), it explains:

Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year. Job gains have been solid in recent months and the unemployment rate has declined.

The Fed is also confident that the recovery will continue, taking inflation back to its target:

The Committee expects 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. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.

Near-term risks to the economic outlook appear roughly balanced, it adds.

Fed sees three hikes in 2017

IMPORTANT: The Federal Reserve is also predicting that it will raise interest rates three times in 2017.

That’s up from the two rate hikes expected back in September.

FEDERAL RESERVE RAISES INTEREST RATES

BREAKING: The US Federal Reserve has voted to raise American interest rates for the first time this year, and only the second time in a decade.

Borrowing costs are going up by a quarter-point, to 0.5%-0.75%. That’s what Wall Street expected, and shows that the Fed is confident that the labour market is in solid shape.

More to follow....

Just 15 minutes to go, until we get the most eagerly anticipated Fed decision of the year.

Michael Scanlon, managing director of Manulife Asset Management, agrees that the Fed’s guidance on interest rate policy will be crucial today.

He says (via Reuters):

The most important thing that investors will be looking atis the interpretation of the commentary from the Fed.

I think the market is pricing in about two hikes for 2017 but if the Trump administration is able to reduce corporate taxes, I wouldn’t be surprised to see four hikes next year.”

Colin Cieszynski of CNC Markets predicts that the Fed will be cautious about future rate hikes:

Will Trump tweet?

The big question on everyone’s lips is whether Donald Trump can resist the temptation to tweet about the Fed decision.

Currency expert Kathleen Brooks, of City Index, says we must watch Trump’s twitter activity after the Fed meeting:

If Janet Yellen threatens to take away the punch bowl at his growth party could he throw his toys out of the pram, and tweet his displeasure? If he does, then this could cause major volatility in financial markets, and it could also be bad news for stocks, as it is likely to lead to questions about the Fed’s independence from Presidential meddling in the coming years...

On the other hand, if Trump can keep himself away from his Twitter account this evening then this would send a positive message to the markets that he will respect the Fed’s independence going forward, which could be seen as positive for markets.

It’s possible that Yellen could upset the president-elect during her press conference, if journalist ask her about bank reglation.

Brooks explains:

One area where Yellen and Trump could clash is the Volcker Rule. This is one of the most controversial elements of Dodd-Frank regulation, which essentially bans banks from proprietary trading, and Donald Trump hates it.

So if Yellen suggests she might oppose Trump’s plans to loosen bank regulation, there could be fireworks....

Bloomberg’s Carl Riccadonna reckons the Federal Reserve will deliver an “ambivalent hike” today.

A what?!

He means they will raise borrowing costs by a quarter-point, but avoid making any firm comments on what Donald Trump’s election win means for the economy.

Specialist James Denaro, left, and trader David O’Day working on the floor of the New York Stock Exchange today.
Specialist James Denaro, left, and trader David O’Day working on the floor of the New York Stock Exchange today. Photograph: Richard Drew/AP

Tension in building on Wall Street as investors brace for the Fed decision.

The Dow Jones industrial average is bobbing around last night’s record close, at 19,910 points.

The Dow has never been over 20,000 points, but today could be the day....if Janet Yellen reassures the markets.

Joshua Mahony, market analyst at City firm IG, says the Fed chair’s comments today will be crucial:

With markets seeing a rate rise as a foregone conclusion, there will be a significant focus upon the language and Fed projections which should shed further light on the 2017 plan.

Updated

Federal Reserve meeting: What to expect

A police officer keeps watch in front of the U.S. Federal Reserve in Washington.
The US Federal Reserve in Washington. Photograph: Kevin Lamarque/Reuters

America’s central bank is preparing to announce its final monetary policy decision of 2016 at 2pm EST (7pm UK time, or 8pm in most of Europe).

Investors and economists are united in predicting that the Federal Reserve will raise US interest rates, probably by a quarter-point to 0.5%-0.75%.

This would be the first rate rise for a year, and mean that the Fed thinks America’s economy, and labour market, is strong enough to handle higher borrowing costs.

The Fed should also release its latest economic and financial forecasts at the same time; showing how its rate-setting committee sees the future.

Fed chair Janet Yellen will then explain the Fed’s decision at 2.30pm EST. We’ll liveblog that press conference here.

Anyone hoping that the US central bank will also offer insights on president-elect Trump will probably be disappointed. Yellen is likely to stick strictly to the numbers, rather than speculate on what Trump’s economic plans might mean for monetary policy.

As Jim Caron, fixed income portfolio manager at Morgan Stanley Investment Management, put it (via CNBC)

“I think too much is unknown. They’re not going to involve themselves in that. They’re going to do what they can do based on the economic evidence at hand.”

Dial back a year, and Fed policymakers were predicting four rate hikes in 2016. Instead, a series of shocks - including Britain’s Brexit vote - have encouraged them to sit tight. So US interest rates have been pegged at 0.25-0.5% for 12 months.

But it will be an almighty shock if the Fed doesn’t hike today....

The chances of snap elections in Greece next year have risen, says Wolfango Piccoli of Teneo Intelligence.

He says the eurogroup’s decision to suspend Greek debt relief puts prime minister Alexis Tsipras in a very difficult position.

If Tsipras goes ahead with the one-off payment to pensioners, this would further antagonize the EZ creditors, putting at risk the promised short-term debt relief. On the other side, giving in to the creditors’ pressure would make Tsipras look amateurish at best, and at worst, further undermine his credibility and standing domestically. This would come on the back of a significant drop in popularity of his own SYRIZA.

This new spat between Greece and its Eurozone partners means that the conclusion of the second review will be further delayed. It also increases the chances of snap elections in Greece as after overplaying his hand and facing increasing difficulties in concluding the review, Tsipras may be tempted to cut his losses by calling early elections before SYRIZA loses more support for adopting unpopular measures.

Syriza would probably lose an early election, given the right-wing New Democracy party has a significant lead in the polls.

Back with Greece:

European shares slip back ahead of Fed decision

Markets paused for breath as investors awaited the Federal Reserve interest rate decision in less than two hours. An increase for the first time in a year is widely expected, but there will be more focus on what the Fed outlines in terms of future rises, not to mention any comments on the economy and the policies of president-elect Donald Trump. The final scores in Europe showed:

  • The FTSE 100 finished down 19.38 points or 0.28% at 6949.19
  • Germany’s Dax dipped 0.35% to 11,244.84
  • France’s Cac closed down 0.72% at 4769.24
  • Italy’s FTSE MIB fell 1.18% to 18,606.32
  • Spain’s Ibex ended down 1.21% to 9218.4
  • In Greece, the Athens market lost 3.21% to 619.19 as the country’s lenders put debt relief on hold

On Wall Street, the Dow Jones Industrial Average is currently down 18 points or 0.09%.

Perhaps the news that Greece’s lenders are putting debt relief on hold has not reached prime minister Alexis Tsipras. Or perhaps it has.

In any case he has now announced his government will extend a pilot programme to give 30,000 school children free meals come January, which may well add to the annoyance shown already by creditors over his plans for Christmas bonuses for pensioners. Helena Smith reports:

After announcing a one-off bonus for pensioners and suspension of a special sales tax on far flung Aegean isles, the leftist leader today turned to school children saying his government would ease the plight of those living in poverty-stricken areas of northern Greece. A pilot programme will, as of January, be funded from the government surplus to feed 30,000 school children living in those parts of Thessaloniki hardest hit by unemployment, he said. “This programme has been factored into the budget of 2017. It is worth around €11.5m,” he said adding that wherever it had been enforced it had ameliorated the problem of malnourishment among young children and improved their performance at school.

Asked if the hand-outs would derail the adjustment programme Greece has agreed to enforce, Tsipras appeared in especially defiant mood.

“I think everyone has to respect the Greek people, who for the last seven years, have made huge sacrifices in the name of Europe. We have carried the weight of the refugee crisis. In the name of Europe we have, in recent years, implemented an extremely harsh policy of austerity. There has to be respect from all. I have, if you will, no doubt whatsoever because everything that we are doing is absolutely within the framework of the Accord which we are keeping and which our partners should keep too.”

Higher than expected drop in US crude stocks

Oil prices have recovered from the day’s lows after the latest US inventory figures showed a bigger than expected dip in crude stocks.

In contrast with the American Petroleum Institute’s figures on Tuesday, the Energy Information Administration said crude stocks fell by 2.6m barrels last week, compared with expectations of a 1.6m fall. But stocks at the Cushing, Oklahoma, delivery hub rise by 1.2m barrels. David Morrison, senior market strategist at Spread Co, said:

This data was at odds with yesterday’s API update. This showed an increase in crude inventories of 4.7 million barrels for the week ending 9th December. This was way above the consensus expectation which was for a decline of 1.6 million barrels. In addition, gasoline inventories showed their biggest rise since January.

Crude has also been under pressure after OPEC released a report predicting that, despite promised production cuts, the oil market wouldn’t rebalance until the second half of 2017. Earlier in the week the International Energy Agency (IEA) had forecast that supply and demand would be in balance in the first half of next year.

Traders will be keeping a close eye on the WTI contract to see if it can hold above the $52 level. If it can’t, then technically the stage could be set for a significant pull-back.

Brent crude is currently down 0.5% at $55.43 a barrel having fallen as low as $54.76 during the day.

West Texas Intermediate - the US benchmark - is down 0.98% at $52.46 a barrel.

Back with Greece:

Italian government wins confidence vote

Some more positive news from the eurozone.

Italian prime minister Paolo Gentiloni won a confidence vote in the upper house of the Senate, allowing his coalition government to take office. Gentiloni replaced Matteo Renzi, who resigned last week after he lost a referendum on constitutional reform.

Gentiloni speaks before a confidence vote at the Senate in Rome.
Gentiloni speaks before a confidence vote at the Senate in Rome. Photograph: Alessandro Bianchi/Reuters

The Greek stock market is down 2.9% following the news that lenders have put short term debt relief for the country on hold.

Here’s Reuters on the latest Greek debt developments:

Euro zone lenders have put on hold the implementation of a short-term debt relief deal for Greece on Wednesday after the Greek government proposed to make a one-off payout to pensioners in December, the euro zone bailout fund ESM said.

Euro zone finance ministers agreed on Dec 5 to grant Greece short-term debt relief that would reduce the amount of the country’s public debt by 20 percentage points of GDP by 2060.

But on Dec 8, Greek Prime Minister Alexis Tsipras said, without consulting euro zone lenders, that his government would spend 617 million euros in one-off benefits for low-income pensioners ahead of Christmas because Greece exceeded its 2016 primary surplus target.

“Following recent proposals by the Greek government to spend additional fiscal resources for pensions and VAT our governing bodies have put their decisions temporarily on hold,” a spokesman for the ESM said.

“Institutions are currently assessing the impact of Greek government decisions vis a vis the ESM programme commitments and targets. (We) will then analyze the institutions’ assessment and subsequently decide how to proceed,” he said.

Eurogroup puts Greek debt measures on hold

And it seems that Greek prime minister Alexis Tsipras’ plan to give struggling pensioners a Christmas bonus has riled the country’s creditors, who had not agreed the deal.

The spokesman for the Eurogroup has just said there was no agreement now to implement the latest short term debt measures:

Updated

Over to Greece where tensions between Athens and the International Monetary Fund continue. As prime minister Alexis Tsipras prepares to meet his French and German counterparts later this week, speculation is mounting that he will ask the organisation to withdraw from the country’s current bailout program. Helena Smith reports from the Greek capital:

Greece’s relations with the IMF were never easy. The Washington-based institution has long been blamed fore the gruelling austerity visited on Greeks even when it wholeheartedly endorsed the cause of debt relief. But the latest spat may be a spat too far. Sources close to the Greek prime minister say in the wake of the fund’s decision to go public with its views – in a blog penned this week by IMF European director Poul Thomsen and chief economist Maruice Obstfeld – Tsipras will propose that the organisation abstains altogether from the bailout programme currently keeping the country afloat. “The Fund has never officially joined this programme and we don’t really need it,” said one. “At most it could be reduced to a technical, consultative role.”

The leftist leader, who on Tuesday blasted the body for being staffed by “irrational technocrats,” is said to be incensed that it is now asking for more pension and tax cuts once the programme expires in 2018. Far too often, he said, the IMF had got it wrong with assessments that either over-estimated or under-estimated the impact of recessionary policies on Greece.

Tsipras visits the island of Nisyros on Tuesday
Tsipras visits the island of Nisyros on Tuesday Photograph: Andrea Bonetti/PM office Andrea Bonetti

In the blog, Thomsen and Obstfeld sought to clarify what they described as “misinformation” surrounding the Fund’s role in Greece insisting that far from advocating more austerity the organisation wanted less. Instead, they said, it was the agreement of Athens to achieve higher fiscal targets that made more austerity inevitable.

Tsipras’ new stance has not been met with universal applause. Many see it as counter-productive, arguing that despite popular myth the IMF is by far Greece’s best ally supporting it on the need for debt relief and primary surplus requirements to be reduced.

Wolfgang Manchau, the prominent European affairs columnist, tweeted that Tsipras was making a huge strategic mistake aligning himself with the Europeans against the IMF.

Stefanos Manos, Greece’s former finance minister, also said he welcomed the IMF officials’ intervention. “I’m glad they went public with their views. Their [blog] comments amounted to a very balanced presentation and made quite a lot of sense,” he told me. “Some of their points – like the one that more than 50 % of people in Greece are not taxed at all - were hair-raising, absolutely maddening to read but needed to be aired.”

Wall Street opens lower

Ahead of the Federal Reserve’s interest rate decision, US markets have edged lower.

The Dow Jones Industrial Average - which has been toying with the 20,000 barrier for the first time - is down 11 points at 19,900 while the S&P 500 and Nasdaq Composite are also marginally lower.

All three indices hit new peaks on Tuesday.

Oil prices slip

Oil prices have slipped lower after their surge since the weekend’s agreement between Opec and non-Opec producers to cut output.

The fall follows data from the American Petroleum Institute on Tuesday showing a 4.7m weekly rise in US crude inventories compared to expectations of a 1.6m decline. Official figures from the US Energy Information Administration are due later.

Meanwhile Opec’s latest report showed a growing oil surplus next year unless members stick to their output curbs. Opec said with the cuts the 2017 overhang would reach 1.24m barrels a day, up 300,000 on its previous estimate.

Brent crude is currently down 1.29% at $55 a barrel.

Weak US retail sales figures, but strong producer prices

Something for the Federal Reserve to think about as they sign off on their latest interest rate decision, with the first rise for a year widely expected.

Retails sales growth cooled off in November after two months of strong gains. They edged up just 0.1% as consumers cut back on car purchases, while October’s figure was revised down from the initial 0.8% gain to 0.6%. Economists had been expecting a rise of 0.3%.

Retail Sales in November
Retail Sales in November Photograph: US Dept of Commerce

Paul Sirani, chief market analyst at Xtrade, said:

Retailers will be more than a little disappointed with November’s drop in retail sales, as well as October’s revised figure, which overall leaves question marks hanging over the sector going in to the festive shopping season.

However, observers will point to the contentious presidential election as a prime reason for shoppers keeping their wallets closed amid the swirling uncertainty.

With retailers making the bulk of their profits in December, the sector will be hoping the lure of sales will be too tempting for shoppers to resist.

But signs of rising inflation have come from another set of data. US producer prices climbed 0.4% last month, the largest gain since June, after being unchanged in October. This is higher than the 0.1% increase expected by analysts. Economist Rob Carnell at ING Bank said:

..What really grabs the attention is the 1.3% month on month rise in trade services. This is mainly due to wider margins in the wholesale and retail sector. And as such, could well be echoed in the November CPI release on December 15.

With the consensus expectation for only a 0.2% month on month increase in November’s headline CPI, we now think that the risk of a higher (say 0.4% month on month) figure is looking more likely.

If so, then headline inflation will rise from 1.6% in October, to 1.9% in November - in excess of the 1.7% year on year consensus estimate.

With markets looking for little further tightening from the Fed after what looks a near-certain rate hike today - the Fed may start to look as if it is either allowing the economy to run a little hot, or alternatively, falling behind the curve, unless today’s expected hike is coupled with more hawkish guidance.

Labour market expert Paul Bivand has tweeted some useful charts on today’s UK unemployment report, which show how the labour market appears to be cooling:

With the UK employment figures out of the way, investors are waiting patiently for the Federal Reserve’s interest rates decision in six hours time.

European stock markets are basically flat (the FTSE 100 has lost 7 points, or 0.1%), and Wall Street is expected to open quietly in 75 minutes time.

Punch shares surge as takeover battle breaks out

Back in the City, shares in British’s second largest pub chain have soared by a third as a takeover battle breaks out.

Punch Tavern is being pursued by Heineken, the Dutch brewer which produces Strongbow and Foster’s, and also by Alan McIntosh, one of Punch’s cofounders.

This two-way battle, broken by Sky’s Mark Kleinman this morning, has excited the City.

Shares in Punch have rocketed by 35% to 172p, from 128p, a two-year high.

The company leases urban and rural pubs across the country to tenant landlords, and has been spending years tackling its huge debt pile build up before the financial crisis.

Punch Tavern’s share price
Punch Tavern’s share price Photograph: Thomson Reuters

Punch has just issued a statement, confirming that it is in “advanced discussions” with the Heineken side, Patron Capital Advisers ,about an offer of 174p per share.

It is also in “discussions” with McIntosh’s consortium, Emerald Investment Partners, which are offering 185p per share (subject to due diligence etc).

Punch cautions that:

There can be no certainty that any firm offer will be made by either Patron or Emerald. A further announcement will be made in due course.

Both groups have until 11 January to make a firm bid, or walk away.

That might not be the end of it, though -- industry regulators might have concerns about such a large pub estate changing hands, especially as Heineken already owns 1,100 leased pubs.

The Resolution Foundation have helpfully fired some charts over., showing how real wage growth is still below its pre-crisis levels (pay rises minus inflation).

.

They also warn that inflation could overtake pay rises in 2017, hitting workers with another pay squeeze:

.

FSB urges more help for self-employed people

Today’s report shows that there are now 4.75 million self-employed people in the UK, up 129,000 compared to last year.

Mike Cherry, National Chairman at the Federation of Small Businesses, is urging the government to provide more help for these workers - who aren’t entitled to the full range of benefits which employees receive.

“The huge rise in self-employment since the recession must be met with action. There is much to do to improve our social security and financial systems in particular.

“Social security and our tax system have not kept up with the changing nature of 21st century work. It is urgent that Government gets to grips with the new reality of more people striking out on their own and working for themselves. In maternity, low pay, pensions and the housing market, the self-employed lose out from systems designed for a different age.

“The Government’s Taylor review is a crucial opportunity to help the wellbeing of the self-employed and the companies they start. Maternity support must be raised to a level closer with the employed and the design of Universal Credit changed so it’s no longer a threat to business start-ups. The financial system must ensure the self-employed have the same chance to buy their own homes and save for retirement as those in traditional employment.”

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), predicts that the unemployment rate will rise from its 11-year lows next year:

“The labour market remains a source of strength for the UK economy. The number of people in work remains close to historically high levels, with unemployment levels continuing to fall.

“However, there are signs that the UK labour market may be beginning to cool, with a small fall in employment and the continued rise in the claimant count measure.

“It is likely that UK unemployment will start to drift upwards in the coming months, as uncertainty over Brexit and the increasing input costs faced by businesses weigh on jobs growth. However, while we currently forecast the unemployment rate will peak at 5.5% in early 2018, this is still well below the long-term average.

Dr John Philpott, Director of The Jobs Economist, is also concerned that the labour market is cooling down:

“The UK labour market finally appears to be suffering a bout of post-Brexit vote blues which is now hitting recruitment. The number of people employed in the private sector has fallen by 17,000 and vacancies have levelled off, though an offsetting rise of 12,000 in public sector employment (mostly in education and the NHS) has limited the fall in both the overall job total and the employment rate.

Despite this headline unemployment is down 16,000 on the quarter but only because the jobs slowdown is disguised by a sharp rise of 76,000 in the number of people out of work who are economically inactive.

PwC: Jobs market is starting to cool off

John Hawksworth, chief economist at PwC, says today’s Britain’s labour market is cooling after a solid run:

“Today’s data provides the clearest evidence yet that the jobs market has started to cool off since the Brexit vote. Total employment in the three months to October was broadly flat compared to the previous three months, having been rising strongly in the year before the EU referendum.

“The official unemployment rate held steady at 4.8%, but this disguised a marked rise in economic inactivity of over 100,000 in the latest three months. The more timely but less comprehensive claimant count measure of unemployment edged up again in November for the fourth month in a row.

Hawksworth adds that it will be hard for firms to hand out pay rises and take on more staff:

Regular pay growth edged up to 2.6%, and is now close to 3% on average in the private sector. This is good news for workers facing the prospect of rising consumer price inflation over the next year, but could dampen future jobs growth if it continues.”

Professor Geraint Johnes, director of research at Lancaster University’s Work Foundation, has dug into today’s data and found that more self-employed workers are now only working part time hours.

That may be a sign that some firms are suffering a drop in demand.

He says:

“The number of full-time self-employed workers fell by some 55000 while those of part-time self-employed workers rose by 53000.

The nature of many jobs undertaken by self-employed workers is precarious, and it is not at this stage clear to what extent the shift towards part-time work is voluntary. To the extent that it is not, there may be clouds on the horizon.”

The rise in wage growth, from 2.4% to 2.6%, will unfortunately be eroded by inflation - which jumped from 0.9% to 1.2% in November.

TUC General Secretary Frances O’Grady urges the government to help workers, particularly in the public sector.

“Wages are still struggling to get off the ground with increases in pay offset by rising inflation. After the longest wage squeeze since Victorian times, this isn’t the pay boost working people need to get their living standards back on track.

“The government needs to act fast to avoid another living standards crisis. That means a clear plan for Brexit that will protect jobs, pay and rights. And we need a quick end to the unfair public sector pay cap, which will see public sector workers face year-on-year cuts to real pay.”

Updated

Number of hours worked falls

Today’s labour market report also suggests that Britain became a little more productive in the last quarter.

We worked a combined total of 1.01 billion hours in the August to October quarter, which is five million hours fewer than in May to July.

The ONS says:

  • people worked, on average, 31.9 hours per week, down slightly compared with May to July 2016 and with a year earlier
  • people working full-time worked, on average, 37.3 hours per week in their main job, a decrease of 0.2 hours compared with May to July 2016 and down slightly compared with a year earlier
  • people working part-time worked, on average, 16.1 hours per week in their main job, unchanged compared with May to July 2016 but down slightly compared with a year earlier.

And as the economy grew by an estimated 0.4% in August-October, that means productivity has gone up (as we took less time to do more work.

Economist Rupert Seggins flags up that the claimant count has been rising for several months - a sign that the UK labour market may be weakening.

UK unemployment: the key points & charts

Here’s the key points from today’s labour market report:

For August to October 2016, there were 31.76 million people in work in Britain -- 6,000 fewer than in May to July 2016 but 342,000 more than for a year earlier.

Labour market breakdown

The employment rate (the proportion of people aged from 16 to 64 who were in work) had fallen to 74.4%, from the joint record high of 74.5% recorded for May to July 2016, but higher than for a year earlier (73.9%).

UK employment rates

There are 1.62 million unemployed people, 16,000 fewer than for May to July 2016 and 103,000 fewer than for a year earlier.

The unemployment rate remained at 4.8%, down from 5.2% for a year earlier. It has not been lower since July to September 2005.

UK unemployment rate

The number of economically inactive people (not in work or seeking work) jumped by 76,000 in the last quarter to 8.91m.

Average weekly earnings rose by 2.5% including bonuses and by 2.6% excluding bonuses.

Average earnings rise

There’s good news for workers:

Average weekly earnings excluding bonuses rose by 2.6% year-on-year in the three months to October, up from 2.4% last month.

Pay including bonuses rose by 2.5%, up from 2.4%.

Average earnings

Here’s Bloomberg’s snap take of the unemployment report:

U.K. employment fell for the first time in more than a year in the three months through October as the labor market showed some signs of weakness.

The number of people in work fell by 6,000 to 31.76 million people, the Office for National Statistics said on Wednesday. While the decline was small, and the jobless rate was unchanged at 4.8 percent, the statistics office said the labor market “appears to have flattened off in recent months.”

Single-month data showed that the unemployment rate rose to 4.9 percent in October from 4.6 percent in September. Unemployment also fell over the three-month period, though that was offset by an increase in the inactivity rate.

Updated

UK jobless rate remains at 4.8%, but employment total falls

Breaking: Britain’s jobless rate remains at an 11-year low of 4.8% for the three months to October.

That matches last month’s figures.

But the number of people in work has dropped by 6,000 to 31.762m, the first fall since the second quarter of 2015.

And the number of people claiming unemployment benefit has gone up again, by 2,400 in November, to 809,000.

More to follow!

Updated

Italian banking shares have hit their highest level since June, having gained 1.3% this morning.

Traders haven’t given up hope that the sector’s weaker banks can be recapitalised, especially after Unicredit’s €13bn cash call received a warm welcome yesterday.

Italian bank shares have now jumped by a quarter since the referendum on constitutional reform, and the resignation of Matteo Renzi:

Kit Juckes of Societe Generale predicts that the Federal Reserve will play a very straight bat today, when it (probably) raises US interest rates for the first time in 2016.

A year ago, markets expected the Fed Funds rate to be in a 0.75-1% range by now. By this evening, they are likely to have crawled to 0.50-0.75%. If for no other reason, that should caution anyone expecting much in the way of a hawkish message from the FOMC - this is a Fed leadership group whose main feature is its dovishness.

Given that the single biggest source of economic uncertainty hanging over the US economy right now is the outlook for fiscal policy -what will President Trump do? - the temptation to be very, very bland in the statement that accompanies a thoroughly-discounted rate hike at 7pm GMT, is likely to be irresistible.

There’s no drama in the foreign exchange markets either, where the pound is sticking firmly to $1.267 against the US dollar, up just 0.1%

Traders may be reluctant to take big positions ahead of today’s Federal Reserve meeting, which could spark volatility depending how hawkish or dovish Janet Yellen is.

Europe’s stock markets have opened cautiously, as investors sit tight ahead of today’s UK unemployment report, and the Fed meeting tonight.

London’s FTSE 100 has dipped by 16 points, or 0.25%, and there are similar declines in France and Germany.

Dixons Carphone are the biggest faller, down 3% in volatile trading, despite posting a 14% jump in profits and telling the City it had its ‘biggest ever’ Black Friday.

Updated

Michael Hewson of CMC Markets agrees that today’s earnings figures are particularly important, following the rise in inflation from 0.9% to 1.2% yesterday.

Inflation certainly appears to be on the way back in the UK in numbers released yesterday, which showed that CPI hit its highest levels in two years driven primarily by clothing and fuel prices, while a rise in import prices to their highest levels since 2011 was an unwelcome portend of what could be around the corner in 2017.

Unemployment is expected to remain at 4.8%, while average earnings are expected to remain at 2.3%.

The agenda: UK unemployment report & Fed meeting

British graduate looking for employment

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

This morning’s main event is the latest UK unemployment report at 9.30am GMT, which will show whether Britain’s labour market is ending the year with a bang or a whimper.

The figures will be poured over for signs that the economy is weakening in the face of continued Brexit uncertainty.

Economists predict that the headline jobless rate will stay low, but the number of people signing on for unemployment benefit may rise.

Here’s what the City expects:

  • the unemployment rate will remain at an 11-year low of 4.8% in the three months to October
  • The employment total will rise by 50,000 during the quarter.
  • Wage growth will remain at 2.3% (but may accelerate to 2.5% if bonuses are stripped out).
  • The claimant count will jump by 6,500 in November, following last month’s 9,800 rise.

Yesterday we saw inflation jump to 1.2%, so if wages don’t rise too people will face a real earnings squeeze in 2017.

Analysts at RBC Capital Markets believe the jobless rate could rise a little, to 4.9%, but are cautious about jumping to many Brexit conclusions.

Employment growth momentum is fading but it is still early days as far as capturing the referendum effect is concerned.

Also coming up today.

The US Federal Reserve is widely expected to raise American interest rates today, at its final FOMC meeting of the year (at 7pm GMT or 2pm EST).

Fed chair Janet Yellen will then give a press conference, to discuss the state of the US economy - and probably field a few questions about politics too.

We’ll keep an eye on Greece, where relations between Athens, the IMF and the EU are deteriorating in a familiar fashion:

On the corporate front, consumer electronics group Dixons Carphone are reporting results this morning. They look decent, at first glance, with first-half profits up 19%, but the firm is also talking about uncertain times ahead.

They’re holding a press with journalists right now, so we’ll have more shortly...

Updated

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