Fed "kowtows to Trump"; UK inflation rises; Pound get Brexit jitters - as it happened
US central bank leaves borrowing costs on hold, cuts growth forecasts, and says rates probably won't rise this year
Earlier:
- Pound hit by Brexit extension move
- Manufacturers despair as growth slows
- Breaking: UK inflation back up to 1.9%
8.03pm GMT
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.
7.57pm GMT
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.
"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."
7.55pm GMT
7.18pm GMT
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...)
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/99STbaEf94
7.12pm GMT
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.
"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.
7.04pm GMT
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.
7.03pm GMT
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/z0cHpUVg1W
7.00pm GMT
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".
6.51pm GMT
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: 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)
6.48pm GMT
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.
6.47pm GMT
"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.
6.44pm GMT
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 Powell: "tariffs may be a factor" in China's economic slowdown but not biggest one
tariffs "relatively small" in overall US economy but "fair amount of uncertainty. prominent concern" of business
6.39pm GMT
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.
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.
6.34pm GMT
Growth has slowed notably in Europe and China, Jay Powell says.
He also identifies Brexit, and trade tensions, as other risks.
6.32pm GMT
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.
6.26pm GMT
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.
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/5gNFuraCr0
6.23pm GMT
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"
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.
6.18pm GMT
The Fed has also trimmed its growth forecasts, which helps explain why it no longer expects to raise borrowing costs this year.
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-end
6.14pm GMT
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%.
6.13pm GMT
Fed decision: Dovish. Fed downgrade picture of economy (=expected). Policy rate 2.5% = close to neutral rate (SEB estimate: 2.70%, Fed 2.8%) = still room for a hike. Fed's key words: "will be patient". Advice from Powell: don't focus too much on dot-plots. No hike in the pipeline pic.twitter.com/tVO4D3WVRW
6.12pm GMT
Kevin Doran, chief investment officer at AJ Bell, is rather scathing about the Fed's dovish new interest rate forecasts -- saying the bank has caved into pressure from Donald Trump.
In an email titled "Fed continues to kowtow to markets (and Trump)", he says:
"It's clear now that, despite the initial bravado accompanying Jay Powell's appointment, the Fed - just like every other major central bank - has found itself backed into a corner on policy. Despite protestations to the contrary, it seems evident that the Fed is kowtowing to stock market reaction to the prospect of higher interest rates and increasing levels of political interference.
"It is all too obvious that nothing of significance is likely to happen on rates until such time that the asset price inflation being stoked by the current economic backdrop seeps its way into 'real world' inflation on the high streets. Maybe we should cut out the middle-man and leave Trump to announce rates on Twitter?"
6.06pm GMT
Wall Street is applauding the Federal Reserve's new guidance.
The Fed's prediction that rates will stay on hold this year is pushing shares higher in New York. It's also weakening the dollar.
Bonds rally, stocks rally and the dollar falls as Fed removes 2019 rate-hike from dots. one dot for 2020. pic.twitter.com/6tELNHXwYs
Fed sees no rate hike this year and plans to end QT in September. Dollar weakens and yields fall. Market wasn't expecting any rate hikes, so presumably it is the QT news that is having the impact. pic.twitter.com/xfE5hvJ6EN
Federal Reserve's so-called dot plot shows that policy makers expect no hikes this year, down from two in December, based on median estimates, with one in 2020. 10-yield yield now at 2.56% with U.S. stocks set to go positive.
6.04pm GMT
NEWSFLASH: America's central bank has voted to leave US interest rates unchanged, at up to 2.5%.
That's as expected.
The median #Fed member no longer expects to raise interest rates in 2019 - this is a dovish development.
5.46pm GMT
Here's Reuters' take on the pound's travails today:
Sterling fell on Wednesday after British Prime Minister Theresa May's request to delay Brexit until June 30 faced resistance from parts of the European Union.
With no consensus in Britain's parliament over how to leave the EU, May was forced to seek an extension from the EU beyond the scheduled departure date of March 29.
5.20pm GMT
Brexit anxiety has helped to push Europe's top stock markets lower tonight.
The FTSE 100 has closed down almost 0.5%, with housebuilders among the fallers. That follows this morning's weak house price data, and uncertainty over whether the UK will be granted an extension to Article 50.
4.35pm GMT
As if to back up Prof Milas's point, the pound has just bounced back over $1.32 as European Council president Donald Tusk spoke in Brussels.
Tusk told reporters that a short Brexit delay should be possible, but only if MPs back the PM's Withdrawal Agreement.
TUSK: Will only delay Brexit if the withdrawal agreement is passed
TUSK: Although Brexit fatigue is increasingly visible and justified, we can't give up finding a positive solution - without opening up the withdrawal agreement" we will not lack the same patience and goodwill at this most critical point in the process
4.22pm GMT
Professor Costas Milas of Liverpool University is concerned that the pound has become a "hostage to political uncertainty".
Rather than reflecting economic fundamentals, sterling's value has been buffered by events in Westminster and Brussels.
Sterling, our most precious measure of international confidence in the UK economy, has sadly become a hostage to Brexit-related policy uncertainty and will continue to be so as we are moving closer to a cliff-edge Brexit scenario.
Surges in uncertainty trigger falls. Forget what we teach our students in economics. Quite sadly, policy uncertainty has overtaken economic fundamentals (such as monetary policy developments in the UK and abroad) in affecting and indeed driving down investor confidence in . Quite an achievement for our political establishment...
3.50pm GMT
Shares in UK housebuilders have taken a thump, since Theresa May announced she was only seeking a short Brexit extension.
Persimmon has slid by 3.6%, with Taylor Wimpey and Berkeley Group both losing 3%.
Brexit-sensitive FTSE Housebuilders all LOD amid Brexit confusion
3.48pm GMT
Catherine McGuinness, policy chair at the City of London Corporation, hopes the EU helps the UK avoid the "catastrophic own goal" of a no-deal Brexit.
We urge the EU to agree to an extension. But even if this is granted, it should not simply paper over the cracks as we risk facing another cliff-edge just around the corner.
"More than ever, politicians on both sides of the Channel need to be pragmatic and co-operate in order to find a long-term solution to the current impasse. We cannot continue driving down this road to nowhere."
3.00pm GMT
Andy Scott, associate director at risk management consultancy JCRA, says today's Brexit developments have spooked some investors:
Theresa May formally requested an extension to the Brexit process until June 30 and ruled out a longer delay. The EU Commission said that this would be legally and politically difficult, suggesting either a short delay until May 23, or until at least the end of 2019.
"This latest differing on views comes at a time where the EU and many UK MPs are increasingly frustrated with Theresa May's uncompromising approach to Brexit. While her spokesman says this shows the strength of her resolve and determination to deliver Brexit, it increases the risk of the UK crashing out of the EU next week (though still unlikely) and that Theresa May is forced out of Downing Street (growing more likely).
1.48pm GMT
Here's Hamish Muress, currency analyst at OFX, on the pound's wobble (it's still down a whole cent against the dollar).
"The pound has continued to tumble today as the conflict between the European Union and Theresa May over the length of the Brexit extension has come to the fore. Reports that the EU are already finding the date of June 30th difficult to swallow has seen investors' confidence in Theresa May's current approach plummet.
How likely is she to get further concessions out of the EU at this stage?
1.31pm GMT
The pound began falling as some EU sources pushed back against the UK's request for a three-month Brexit extension.
For example, here's Norbert Rittgen, the head of the German parliament's foreign affairs committee:
#May just asked #EU for short #Brexit extension. But without backing by cabinet and parliament her request is meaningless. @JunckerEU is right: EU leaders should defer decision until #UK presents an approved plan. EU cannot become accomplice of May's internal tactical manoeuvres.
.@JunckerEU thinks it is good that @theresa_may sets out her thoughts ahead of #EUCO; warned her in phone call against including a date for the extension that is after #EUelections2019. #Brexit has to be complete before 23 May - otherwise #EUelections2019 have to be held in UK.
Related: Theresa May asks EU for Brexit delay until 30 June
1.03pm GMT
The sterling selloff is gathering pace - the pound's now down over one cent at a one-week low around $1.316.
Sterling reaction to May confirming short delay feels like market finally waking up to the fact that the risk of no deal by accident has increased substantially this week. pic.twitter.com/lsUQqUquFo
1.00pm GMT
Here's my colleague Philip Inman on the slowdown in the UK housing market:
House prices grew at the slowest rate since 2013 in January, according to official figures that signalled the UK was heading later this year for the first fall in property values since the financial crash.
Average house prices in the UK increased by 1.7% in the year to January 2019, down from 2.2% in December 2018 and 5.1% in October 2017, the Office for National Statistics said.
Related: House price growth at six-year low and inflation rises to 1.9%
12.32pm GMT
The pound is dropping further, as Theresa May tells MPs that she is seeking to extend Brexit until 30 June.
Sterling has now lost almost three quarters of a cent, dipping below $1.32..
Theresa May's letter to Donald Tusk #pmqs pic.twitter.com/sN2UZKeDWs
Related: PMQs: May says she doesn't want a long Brexit delay as No 10 releases letter to EU - Politics live
11.54am GMT
The CBI's monthly survey of UK factories shows how activity and output has slowed in the last few months.
But as you can see, industry actually held up well after the EU referendum -- partly due to the weaker pound helping exports.
11.10am GMT
Nicole Sykes of the CBI explains why UK bosses are in despair over Brexit:
Honestly, spare a thought for all those people within businesses having to dial into the weekly global team call, fly out to Germany each month for board meetings or compile fortnightly briefing packs for Japan and having to explain all of this *points at UK politics*
11.08am GMT
The CBI has also asked UK firms about Brexit -- and many confirmed that they've been hoarding raw materials and components.
A quarter of respondents to this month's industrial trends report reported stockbuilding, with others mentioning depressed investment and demand due to uncertainty, and the difficulty in obtaining export orders.
"Manufacturers are in despair at the unacceptable failure of politicians to end the Brexit impasse. Every day that goes by without a resolution results in more businesses putting off investment and stockpiling goods in order to soften the blow from a potentially disastrous "no deal" Brexit scenario.
"It is crucial that Brexit uncertainty is lifted as a matter of urgency. Only then can manufacturers begin to move forward and shift our attention on to resolving the long-term challenges facing the sector - such as solving our skills challenge and raising productivity."
11.04am GMT
Just in: UK factory growth has hit its lowest rate in almost a year.
Output volumes expanded in 11 out of 17 sub-sectors, with growth driven predominantly by the food, drink, & tobacco, chemicals, and metal manufacture sub-sectors. Meanwhile, the mechanical engineering, paper, printing & media, and motor vehicles & transport equipment sub-sectors were the main drags on growth.
10.52am GMT
The small pick-up in inflation raises the chances of a UK interest rate rise before Christmas.
So argues Yael Selfin, Chief Economist at KPMG UK:
"Solid wage growth and minimal spare capacity could encourage the Bank of England to raise rates once more by November this year to 1%.
"Strong services inflation compared to goods inflation point at the simmering inflationary pressures as a result of rising wages and the record tight UK labour market.
10.27am GMT
Potential first-time buyers will be pleased to hear that house price growth is cooling.
But after several years of housing inflation, homes will still be unaffordable to many....
House price growth has slowed recently but increases in house prices have still substantially outpaced increases in earnings since 2011 pic.twitter.com/uUqCP2B3UL
This yawning gap between house prices and earnings is largest in London, and has only closed very slightly recently as house price growth in the capital has stalled. pic.twitter.com/VGywGqvxXI
10.11am GMT
House prices could suffer sharp falls if Britain crashes out of the EU without a deal, predicts economist Howard Archer.
He writes:
10.03am GMT
Brexit uncertainty is hurting London's housing market too, says Mark Harris, chief executive of mortgage broker SPF Private Clients:
London continues to see the largest annual price fall as those worried about the Brexit fallout err on the side of caution.
That said, the year has got off to a remarkably good start on the lending front despite ongoing political uncertainty. Clearly, some people have had enough with situations they can't control and are getting on with their lives
10.01am GMT
John Goodall, CEO of buy-to-let specialist Landbay, reckons potential buyers are fleeing London in search of cheaper houses.
"House price growth is off to a very slow start for the year, echoing December's stagnant figures and reaching the lowest annual rate since June 2013. However, problems with affordability and supply remain.
At a regional level, price rises in London continue to lag behind the likes of the East Midlands and East Anglia, a sign that demand in the capital is cooling as many buyers migrate away in search of something more affordable.
9.53am GMT
The rise in UK inflation is a small blow to households, as it erodes real wages (reminder, basic pay is rising by 3.4%).
This chart shows how food and alcohol were the main culprits. According to the ONS, bread, cereal and vegetables all pushed inflation up.
9.46am GMT
As you can see, London's housing market is a lot weaker than the rest of the country:
9.37am GMT
Newsflash: UK house price inflation has slowed, partly due to another fall in prices in the capital.
The Office for National Statistics says that house prices were 1.7% higher in January than a year ago, the weakest house prices inflation since June 2013.
Over the past two and a half years, there has been a slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.
The lowest annual growth was in London, where prices fell by 1.6% over the year to January 2019, down from a decrease of 0.7% in December 2018. This was followed by the East of England where prices fell 0.2% over the year.
9.34am GMT
It appears that rising food and alcohol costs helped to push UK inflation up from January's two-year low.
The Office for National Statistics says:
Rising prices for food, alcohol and tobacco, and across a range of recreational and cultural goods produced the largest upward contributions to change in the rate between January and February 2019.
The largest, offsetting, downward contribution came from clothing and footwear, with prices rising between January and February 2019 but by less than between the same two months a year ago.
9.32am GMT
Breaking: UK inflation has risen slightly.
The Consumer Prices Index rose by 1.9% in the 12 months to February, up from 1.8% in January, and higher than the City expected.
9.27am GMT
The pound is dropping against the US dollar, now down almost half a cent at $1.3226.
Traders are getting jittery about the chances of the UK getting a Brexit extension, and this sort of thing isn't helping!
EU sounding the alarm: THEY HAVE NOT YET RECEIVED THE PMs LETTER -EU Diplomats saying: How can 27 leaders be expected to reach a unanimous decision on PM's #Brexit extension request with only hours to go before tomorrow's EU summit and still no official notice from No10..?
9.07am GMT
A flurry of takeover action has driven shares in UK satellite operator Inmarsat up 16%.
Inmarsat has told the City last night that it's talking to a private equity-led consortium about a $3.3bn cash deal.
8.48am GMT
Related: Vi(C)ronique Laury to step down as CEO of struggling Kingfisher
8.43am GMT
After hitting a five-month high yesterday, European stock markets have dropped back this morning.
German pharmaceuticals firm Bayer is the region's biggest faller, down 12% after a US court ruled that its glyphosate-based Roundup weed killer caused cancer.
The reason for Europe's red start is the same as what gave the Dow Jones a headache on Tuesday. Namely a Bloomberg reporting suggesting China are pushing back on some US trade demands, despite Trump's insistence that the two countries are making progress.
8.19am GMT
Mining companies are under pressure this morning, as trade war worries mount again.
Copper miner Antofagasta is leading the selloff, down 4.2%, followed by Rio Tinto (-3.3%), Glencore (-2.9%) and Anglo American (-2.2%).
The deadly duo of Lighthizer and Mnuchin are heading to China next week, with the aim of sealing a deal by the end of the month. But there are still a large chasm between the two sides.
8.03am GMT
Shares in Kingfisher have jumped 1.5% at the start of trading, making it the best-performing member of the FTSE 100.
8.02am GMT
Kingfisher's latest financial results, also just released, help explain why it's looking for a new CEO.
Like-for-like sales fell by 1.6% in the last year, helping to drive statutory earnings down by over 50%.
"During the year, the UK, Poland and Brico Di(C)pit France performed well, leveraging the benefits of our transformation. However, Castorama France has been disappointing and we are implementing a clear plan to sustainably improve its performance.
7.44am GMT
City news: DIY chain Kingfisher is ousting its chief executive, after her turnaround plan failed to pay off.
B&Q owner Kingfisher's boss Veronique Laury is off. She says the retailer's "transformation" is in its final year. Share price when she joined: 336p. Share price today: 245p
Leading the transformation has been so exciting but also very challenging. As the transformation approaches its final year, I believe it is right for someone else to lead the next phase of the ONE Kingfisher journey.
The number of female FTSE 100 chief executives will drop from six to five as Veronique Laury announces her departure from Kingfisher (owner of B&Q) as profit targets prove too optimistic: https://t.co/VM4gMHYfr9 @JonathanEley @fastFT pic.twitter.com/W9GIkT427X
7.28am GMT
Anxiety over the US-China trade talks is building again today.
Chinese officials have shifted their stance because after agreeing to changes to their intellectual-property policies, they haven't received assurances from the Trump administration that tariffs imposed on their exports would be lifted, two of the people said on condition of anonymity.
Beijing has also stepped back from its initial promises over data protection of pharmaceuticals, didn't offer details on plans to improve patent linkages, and refused to give ground on data-service issues, one person familiar with the U.S.'s views said.
7.17am GMT
Good morning, and welcome to our rolling coverage of the financial markets, the world economy, the eurozone and business.
UK workers got some good news yesterday - wages are rising at their fastest pace since the financial crisis, at a pacy 3.4% per year.
If today's CPI inflation numbers show another drop from the surprise drop to 1.8%, we saw in January, then consumers will get a further boost to their wage packets after months of negative to low wage growth.
Even if we come in at 1.8% in the February numbers it will still be a two-year low for headline CPI, with core prices also expected to come in at 1.9%.
FOMC Preview: Data-dependent Powell forced into a dovish corner. Watch 2020/2021 dots. Flatlining these would corroborate view that US interest rate cycle has peaked. This will be *too dovish* for investors to fade the dovish Fed. End date for QT good news for risky assets $USD pic.twitter.com/ZYv7KCHFVp
Breaking: No10: "PM won't be asking for a long extension. There is a case for giving Parliament a bit more time to agree a way forward, but the people of this country have been waiting nearly 3 years.. They are fed up with Parliament's failure to take a decision 1/2
European Opening Calls:#FTSE 7295 -0.40%#DAX 11708 -0.69%#CAC 5407 -0.34%#MIB 21321 -0.51%#IBEX 9458 -0.36%
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