Stocks surge as Fed leaves US interest rates on hold and promises 'patience' - as it happened
Rolling coverage of the latest economic and financial news, as America's central bank leaves interest rates on hold and strikes a dovish tone
Earlier:
9.24pm GMT
And finally, the New York stock exchange has closed sharply higher after the Fed dropped its predictions for further interest rate hikes.
Stock markets strengthened on the news that the federal reserve will adjust their balance sheet normalization targets in light of economic and financial developments, a decision first outlined in their December meeting.
Although the Fed doesn't see their balance sheet runoff as the cause of recent market turbulence, investors certainly did. The Fed now finds themselves in an interesting position, as many will feel today's decision is catering to Wall Street and President Trump. It should be noted that the Fed's guidance on halting rate hikes and balance sheet runoff has been consistent: the Fed's decision are data dependent and further decisions will require patience and flexibility."
9.11pm GMT
We have entered the realm of Powell's Pause, says Robin Anderson, senior economist at Principal Global Investors.
Here's her take on today's Fed interest decision:
The Fed is stepping back from raising rates on autopilot and will likely continue to look at other metrics to inform Fed decisions, including inflation rates, U.S. market trajectory and global growth numbers."
"What a difference a month makes. The market reacted swiftly and negatively to the Fed meeting in December. But today, we saw a much more dovish Fed, the Fed changed its language and shifted away from gradual increases to a position of patience."
8.32pm GMT
Nothing in Jerome Powell's press conference dented the upbeat mood in the markets.
Investors are cheered that the Fed has pressed the pause button on its rate hike cycle, and wondering if the next move might be to rewind....
Dove is in the air, everywhere I look around. Fed says it will be "patient" on further rate hikes - Dow up 2% to its highest in almost 2 months, 10y yield down to 2.68%, yield curve steepens. pic.twitter.com/YNT2pFoTl9
8.16pm GMT
#BREAKING US would feel disruptions from hard Brexit, says Fed's Powell pic.twitter.com/AG7zuEr5Xu
8.15pm GMT
Asked about Brexit, Jerome Powell says that the Fed is taking steps to ensure America's financial system can cope with "a full range" of outcomes.
He also warns that a hard Brexit would have an impact on the US, especially if it caused financial turmoil.
Powell:
-We've monitored brexit carefully for a long time
-Hard brexit would likely be felt in U.S.
-Hoping for resolution that avoids a hard brexit
7.57pm GMT
Q: Have you just caved to President Trump?
All we care about is using our tools to help the American people, Powell replies in a particularly serious tone. We don't get involved in politics.
We're human, we make mistakes, but we don't make mistakes of character or integrity.
7.54pm GMT
Q: Have we reached the end of the US rate-hiking cycle, rather than simply pausing it?
Powell says we'll only know in hindsight.
7.53pm GMT
Q: What's changed since the Fed's last meeting, just six weeks ago (when Powell was predicting gradual rate hikes)
Powell says recent data have shown that the slowdown in China and Europe has continued.
7.50pm GMT
Q: Has the Fed considered changing the pace of unwinding its asset purchase scheme?
Powell insists that no decisions have been taken, but discussions are underway [the issue here is how large the Fed's balance sheet should be in the long term]
7.47pm GMT
Q: Your statement talks about adjustments, so might the next interest rate move be up, or down?
It depends entirely on the data, Powell says, adding that the 'cross-currents' facing America could be with us for a while.
FOMC statement refers to "adjustments" to rates. Rich Miller asks if that means rates are as likely to go up as down. Powell comes close to suggesting that Fed doesn't know if next move will be up or down.
7.44pm GMT
Asked about economic risks (such as Brexit, and trade wars), chairman Powell says Fed officials believe the economic outlook is "still solid".
7.43pm GMT
Q: Are US interest rates now at neutral? (ie, neither stimulating nor holding back the economy?).
Powell says policy is 'appropriate', adding that the Fed funds rate is within the 'range' of neutral.
"We think our policy is at the appropriate point," Powell says, indicating that the Fed isn't sure anymore whether it's still helping to boost the economy.
Fed funds rate is now in the range of the FOMC's estimates of neutral, Fed's Powell says at press conference.
7.39pm GMT
Dow up over 400 points as Powell says the case for raising rates has weakened and the Fed is taking a "wait and see" approach
7.37pm GMT
Powell says the case for further interest rate rises has 'weakened somewhat', as inflationary pressures have declined.
Pretty dovish stuff from Fed Chair Powell so far:
- Case for raising rates has weakened somewhat
- Risk of too high inflation has diminished
7.35pm GMT
Federal Reserve chair Jerome Powell is holding a press conference now.
Powell gives a recap of the Fed's meeting.
7.22pm GMT
Markets agree that Patience is a virtue. #Fed $SPY
....and a buying opportunity.
7.20pm GMT
Candice Bangsund, Vice President and Portfolio Manager at Fiera Capital, predicts the Fed will leave US interest rates unchanged until at least July.
We expect the Fed to take a pause and remain sidelined through the first half of the year in order to monitor the evolution of the macroeconomic landscape and recommence with two more rate hikes in the back half of the year."
7.19pm GMT
The Fed has turned cautious, says Nancy Curtin, chief investment officer at Close Brothers Asset Management:
"After taking a gradual approach to interest rates last year, the Fed has become more cautious still and moved back into wait-and-see mode. A slowdown in global growth and market volatility has caused some concern.
However, should trade negotiations with China and the outlook for growth improve, the combination could lead to a better second quarter for the economy, giving Powell more confidence to normalise monetary policy.
7.18pm GMT
Here's a neat summary of the Fed's new message:
#Fed #FOMC statement:
- fed funds rate range unchanged 2.25-2.5%
- removes forward guidance: "judges that some further gradual" rate hikes likely
- removes "balanced risks"
- "patience" given global economic & financial developments
- "muted #inflation" & anchored expectations" pic.twitter.com/E28zwM78cI
7.13pm GMT
The dollar is weakening against other currencies - another sign that the markets believe the Fed is less likely to raise interest rates anytime soon.
Dollar spot index after Fed headlines. pic.twitter.com/KIhTlLUYuM
DOLLAR HITS SESSION LOW VS EURO AFTER DOVISH FED STATEMENT
7.11pm GMT
Shares are rallying on Wall Street, as investors cheer the Fed's pledge to be 'patient' before raising interest rates again.
The Dow Jones industrial average has jumped 422 points, or over 1.5%, to 25,018 points.
Dow jumps 1.5% as balance sheet flexibility is just the dovish stance equity investors will love. FOMC holds rates as expected, unanimous but Fed removes reference to further gradual rate increases. Fed says it's prepared to adjust balance sheet normalization. pic.twitter.com/Ka2gIs2tv5
7.08pm GMT
Significantly, the Fed has changed the language in its monetary policy statement - dropping its guidance that 'further gradual' rate rises will be needed.
Here's what changed in the @federalreserve's January statement https://t.co/e7BlX0F2Op pic.twitter.com/vlKfqMwGLc
7.04pm GMT
Newsflash: The US Federal Reserve has voted to leave interest rates on hold today, at their current level of up to 2.5%.
And more significantly, the Fed has dialled back its predictions of future rate hikes in 2019.
"In light of global economic and financial developments and muted inflation pressures, the committee will be patient [when determining future rate adjustments."
5.38pm GMT
After a mixed day for European stock markets, Britain's FTSE 100 has closed 107 points higher at 6,941 - a gain of 1.6%.
France's CAC also did well, gaining almost 1% after the French economy grew faster (+0.3%) in the last quarter.
Markets breathed a sigh of relief over Apple's results and encouraging China related news, which overshadowed rekindled Brexit nerves.
As usual the multinationals on the FTSE, which also book revenue in dollars, were fairing well, whilst the more domestically focused firms lagged behind.
Related: Apple reports first decline in revenues and profits in over a decade
4.05pm GMT
Over in Greece the ripple effects of the country's successful bond sale yesterday - the first since Athens exited its final bailout program - continue to be felt today with yields on Greek bonds falling sharply.
Yields on five-year bonds struck a six-month low of 2.928% in what analysts were interpreting as further good news for prime minister Alexis Tsipras, as he basks in global praise for successfully ending the decades-long name row over Macedonia which had helped clear the way for Tuesday's bond sale
French president Emmanual Macron was the latest to praise the accord - ratified by the Greek MPs last week - an an example of problem solving at its best for Europe.
3.32pm GMT
Here's our economics correspondent, Richard Partington, on today's UK credit figures:
The boom in consumer borrowing across Britain has cooled to the slowest annual growth rate in four years, according to official figures, as households rein in their spending.
The Bank of England said annual consumer credit growth slowed to 6.6% in December, continuing a trend for weaker levels of household borrowing on credit cards, personal loans and car finance deals.
Related: UK shoppers rein in credit card use amid fears over economy
2.02pm GMT
Fast food chain McDonalds has just beaten Wall Street forecasts, thanks to strong international growth (although the US market lagged behind).
McDonalds posted earnings per share of $1.97, beating forecasts of $1.89. Revenues were slightly ahead of estimates, at $5.163bn, with global like-for-like sales up 4.4%.
"2018 was a strong year for our business; together with our franchisees, we served over a billion customers, closed the year with a record-breaking month in December, and have now delivered 51 consecutive quarters of sales and guest count growth. We are pleased to be succeeding by continuing to listen and invest in what customers want: choice, value and convenience, and doing right by our people.
1.48pm GMT
Over in America, strong employment data suggests the government shutdown hasn't caused immediate harm to the labor market.
213,000 new jobs were created by US companies this month, the latest ADP survey shows. That's a solid figure, beating forecasts of 181,000.
#UnitedStates ADP #Employment Change at 213K https://t.co/LOS8b95mlz pic.twitter.com/ilcltjkQd4
12.40pm GMT
Stocks continue to rally in London, despite this morning's weak consumer credit figures, and the ongoing Brexit uncertainty.
The FTSE 100 index is now 105 points higher at 6939, extending yesterday's rally.
While it's difficult to envisage right now, the Brexit blues depressing the UK stock market will eventually pass. It may yet get worse before it gets better, but investors putting money in the market today should be considering the returns they will get out to 2029, not just in 2019.
In today's unpredictable political environment, diversification is critical, so that whichever way the Brexit cookie crumbles, some of your portfolio is performing well. However huge sums have been withdrawn from UK equity funds since the EU referendum was announced, and hence some investors may now have little exposure to the UK stock market. That means turning down an attractive value opportunity for the long term, and even in the short term may mean they miss out if there's an improvement in the Brexit outlook.'
12.08pm GMT
Germany's BGA trade body isn't pulling its punches over Brexit, as we enter the final two months before exit day.
In a statement, BGA declared that the lack of a finalised deal means:
"The German and especially the British economies are heading for a huge disaster."
German, British economies heading for disaster over Brexit situation - BGA https://t.co/5xw8pAoaJQ pic.twitter.com/75wt9rA03O
11.33am GMT
I mentioned earlier that a cloud of gloom was covering the eurozone. Now, the latest consumer sentiment report shows that morale has dropped to a two-year low.
The EC's economic sentiment index has dropped to 106.2 points in
January, the 7th monthly fall in a row - and the lowest level since November 2016.
bad news for Eurozone economy: the Business Climate indicator plunges to 0.69 in January, worse than expected 0.75 and the lowest level since Nov 2016. Also @EU_Commission Business and Consumer Survey falls to 106.2 the lowest since Sep 2016
Finally, Eurozone Services Sentiment falls to 11.0, from previous 12.2, the lowest since Sep 2016. The morale in the eurozone is not good... @graemewearden
11.29am GMT
Britain's high streets are in enough trouble, without consumers snapping their credit cards (metaphorically speaking).
New analysis shows that the average town in England and Wales has lost 8% of its shops in the last five years, rising to 20% in Stoke and Blackpool.
Related: High street crisis: stark new analysis shows extent of closures
11.18am GMT
Josie Dent, economist at the CEBR, says the slowdown in credit growth is due to nervous households struggling with "unsustainable levels of debt", and unwilling or unable to take on any more.
She writes:
This month Cebr research with YouGov found that UK consumer confidence continued to decline in January, sinking to its lowest level since May 2013. This low level of confidence will be making many hesitant to borrow - as shown by the low rate of growth of credit card debt.
To make ends meet many households are instead cutting back expenditure, for which the struggling high street provides evidence, as many consumers have curbed spending on retail goods.
Related: UK personal insolvencies hit seven-year high
10.45am GMT
Economist Sam Tombs has spotted that UK consumer credit is now slowing at the fastest rate since the financial crisis:
The net increase in unsecured borrowing likely financed just 0.7% of all purchases, down from 0.9% in Q3 and 1.4% a year earlier. The MPC was complacent last year to suggest that because credit only accounted for <2% of all spending, it posed no risks to the growth outlook. pic.twitter.com/SmYc9qEHWG
10.39am GMT
In some ways, the slowdown in UK credit growth is welcome.
Back in 2017, the Bank of England was worried that consumer credit was booming at 10% growth per year. That could create a borrowing bubble that will burst when the economy stumbles.
9.54am GMT
The slowdown in credit growth can certainly be pinned on Brexit, says economist Howard Archer of the EY Item Club.
He believes borrowers and lenders have both become more cautious about the economic outlook, and Brexit uncertainty.
9.50am GMT
Newsflash: Lending to British consumers has slowed to its weakest growth since late 2014, as people cut back on credit cards.
Mortgage approvals have fallen too, in the latest sign that Brexit uncertainty is weighing on the economy.
Annual consumer credit growth slowed to 6.6% in December, reflecting the continuation of relatively weak flows of new lending. The net monthly flow in December fell to 0.7 billion, reflecting less extra borrowing on credit cards.
9.31am GMT
Chris Williamson of data firm Markit argues that the gilet jaunes protests have hurt the French economy, despite today's solid growth report.
He points out that Markit's Purchasing Managers Index reports show a sharp slowdown in the last couple of months. That may show up in future GDP reports.
GDP in #France grew 0.3% in Q4 2018, exactly in line with our #PMI model and closing the gap between the PMI and GDP seen earlier in the year (see https://t.co/MA2nuMJ3b4). However, weak December and January flash PMI numbers point to a big loss of momentum due to protests. pic.twitter.com/mZlfsiJy0Z
9.26am GMT
Sterling is clawing back some of last night's losses, as traders try to calculate the likely path of Brexit.
The pound has gained almost half a cent against US dollar to $1.311 this morning, suggesting the City isn't panicking.
In the short term there will be major pressure on the pound, especially against the US Dollar. One more slip from Theresa May and we could see the pound hit the deck and fall back below 1.30 against the dollar."
9.16am GMT
Economist Shaun Richards isn't too impressed with France's GDP figures (and fair enough - 0.3% growth is hardly sizzling)
GDP in France rose by 0.3% in the 4th quarter which in he circumstances is good news but annual GDP growth fell to 1.5% in 2018 from 2.3% in 2017 showing overall weakness.
Continuing with the theme of GDP in France we saw 4th quarter be the same at 0.3% as the downwardly revised Q3 and there is a danger of another downwards revision as we note it was December that was the weak month in the series.
8.59am GMT
The Yellow Vest protests forced French president Emmanuel Macron to announce a swathe of spending plans last month, including a higher minimum wage and tax breaks for pensioners and low income workers.
That package will cost a10bn, but may keep the economy on track in 2019.
In France , despite the #giletsjaunes protests Q4 GDP came at a descent
0.3%.
Net trade saved growth as private consumption - the main engine of growth made a null contribution...but should be temporary. Government measures meant to support household's purchasing power. pic.twitter.com/F04tQORMzo
8.53am GMT
France's stock market has risen this morning, as traders welcome today's GDP figures.
The CAC 40 index of leading French companies has risen by 0.4%, outperforming Germany (down 0.2%).
Related: Pound falls after Commons vote spurs no-deal Brexit fears
8.47am GMT
8.25am GMT
Back in the UK, businesses are increasingly nervous about Brexit after parliament voted to change Theresa May's deal - despite the lack of appetite from Europe to reopen it.
"The reaction of business today will be one of rising frustration and concern. The main objective that business has is to avoid no deal. Did yesterday do anything to move us further away from no deal? And I think the answer feels as though it is no."
"It is welcome to see that there is a consensus against no deal" But it is not binding, it does nothing practically to take no deal off the table and it does feel like hope rather than strategy.
"I don't think there will be a single business this morning who is stopping or halting their no deal planning as a result of what happened yesterday.
"There are some businesses who are ready. Financial services have been able to prepare a long time in advance and it hasn't been comfortable and they spent a lot of money on it but they are broadly ready. The real areas of concern now are around manufacturing, other services, broadcasting actually insurance is still not in great shape, they are deeply concerned.
"We said before no deal is just not manageable at this stage."
8.11am GMT
Given all the anxiety over trade wars, the 2.4% surge in French exports in the last quarter is a little surprising.
According to INSEE, France's manufacturers racked up more "aeronautic and naval equipment deliveries" in the last quarter.
#France | Exports Contribution to GDP growth reached 0.74% a-in 4Q18 (highest since 2Q17)
*According to INSEE, "exports accelerated significantly because of dynamic aeronautic and naval equipment deliveries". pic.twitter.com/wHBjntjokE
8.05am GMT
Despite the impressive jump in exports, many City experts are concerned about weakness in the French economy.
Philippe Waechter, chief economist at Ostrum Asset Management, points out that French domestic demand has faltered:
The French #GDP increased by 0.3% in the fourth quarter (as in the third quarter). For 2018, the average growth is 1.5% after 2.3% in 2017. In the last quarter of 2018, domestic demand was weaker with a 0.1% contribution to quarterly GDP growth. Consumption stalled and investment
#FRANCE DEC CONSUMER SPENDING M/M: -1.5% V -0.3%E; Y/Y: -2.3% V -0.7%E
*Consumption of durable goods fell sharply in December (a'3.8%, after +0.1% in November).
*Link: https://t.co/qy2TWUaTAp pic.twitter.com/8DnaBDC1Xa
#France's #GDP growth for Q4 2018 equaled 0.3%, better than expected! YoY growth, however is down to 0.9% the slowest pace since Q3 2015. Yet part of the soft spot may be behind us. pic.twitter.com/stsKstzjWj
7.30am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Household consumption expenditures decelerated (0.0% after +0.4%), likewise total gross fixed capital formation slowed down (GFCF: +0.2% after +1.0%). Overall, final domestic demand excluding inventory changes decelerated: it contributed 0.1 points to GDP growth, after 0.5 points in the previous quarter.
Imports bounced back in Q4 (+1.6% after a'0.7%) and exports accelerated significantly (+2.4% after +0.2%). All in all, foreign trade balance contributed positively to GDP growth again: +0.2 points, after +0.3 points in Q3. Conversely, changes in inventories contributed negatively to GDP growth (a'0.1 points after a'0.5 points).
Top notch front page by the Independent pic.twitter.com/efJunXyo7a
Related: Brexit: May goes back to Brussels but EU says nothing has changed
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