Federal Reserve hikes interest rates seven years after financial crisis – as it happened
The Federal Reserve has increased interest rates by 0.25%, a historic moment after years of record lows
- The market likes the hike
- Bernie Sanders believes the rate rise is a major misstep
- Full Story: Federal reserve raises rates
- Analyst: Hike could boost markets
- Reasons to hike, and to hold back
9.02pm GMT
The Dow reacted favorably to the news - since 2 p.m., when the rate increase was announced, the industrial average has steadily risen and closed up 1.28%. The S&P 500 has followed an almost identical trajectory and closed up 1.45%. Neither Bernie Sanders nor the Guardian editorial board are sold on the rate change; we will doubtless be sussing out the effects of the hike for years go come. The blog is wrapping up for the afternoon but our full story on the meeting, the hike and the reaction from many different sectors is here.
Keep coming back to the business section as the story unfolds.
8.48pm GMT
Dean Turner, an economist at UBS, said he believed the market impact would be largely positive, since what financial systems like least is equivocation and the last several months of will-they-or-won't-they has made investment difficult.
"Markets should welcome the decision to hike US rates as it puts months of uncertainty to one side," he wrote. Turner, who also said UBS favored yield European bonds, said he thought further rate increases would not hurt economic growth domestically. "We expect the pace of tightening next year to be gradual, with four more hikes in 2016. Although this is more hawkish than the markets currently expect, we believe that the US economy will continue to expand."
8.44pm GMT
Jana Kasperkevic, on the ground in DC, spoke to deputy labor secretary Chris Lu about part-time unemployment.
There are few things that Yellen says the FED is still concerned about - one of them is the "abnormal high level of part-time employment".
Earlier this month, the US Department of Labor announced that "the number of persons employed part time for economic reasons" - those who wanted a full time job and could not find one - "increased by 319,000 to 6.1 million in November, following declines in September and October."
8.38pm GMT
After clocking in an hour and seven minutes of press conference, Yellen ends her final comments with another assertion that the Fed will watch wages closely (along with inflation, unemployment, and every other economic measure) as it decides whether to hike interest rates again.
Yellen says in a strengthening market we should see increase in wage growth. We have a seen a pick up in average hourly earnings
8.36pm GMT
Yellen wants Americans to think of the new interest rate as a vote of confidence in the economy.
Democratic candidate for president Bernie Sanders thinks she's made a big mistake.
"When millions of Americans are working longer hours for lower wages, the Federal Reserve's decision to raise interest rates is bad news for working families. At a time when real unemployment is nearly 10 percent and youth unemployment is off the charts, we need to do everything possible to create millions of good-paying jobs and raise the wages of the American people.
"The Fed should act with the same sense of urgency to rebuild the disappearing middle class as it did to bail out Wall Street banks seven years ago."
Related: The Guardian view on the US interest rate rise: risky and premature | Editorial
8.31pm GMT
Yellen says the Fed isn't following a calendar for interest rates, but she says it like this: "It is not the intention of the commiIttee to follow any mechanical formula of that type."
Things Yellen keeps repeating: - this is a small step - gradual increases - Fed will "carefully monitor" factors like inflation
8.27pm GMT
We're coming towards the end of Yellen's press conference and so far the stock markets are loving it. The Dow Jones Industrial Average has risen pretty much constantly since she started talking. We've come a long way considering that any talk of a rate hike used to send investors into a panic.
8.25pm GMT
Yellen again dodges a question about what happens if inflation doesn't do what the Fed wants it to (increase gradually on its way up to 2%).
She alludes to the stock market shocks of international markets and the continuing plummet of energy prices. "I do expect there is a bottom to that, I expect that we'll be seeing that."
8.22pm GMT
Long-term loans should not move much because of the decision, Yellen tells a reporter, urging the same calm as she has for nearly an hour.
"Loans that are linked to longer term interest rates are unlikely to move very much," she says, using "some corporate loans" as an example.
8.16pm GMT
Today's decision follows months of debate and dissent, my colleagues Jana Kasperkevic and Rupert Neate note - but today's decision was unanimous.
In his analysis of the minutes from the October's meeting, Rupert observed: "'a couple' members raised concerns that raising rates in December could be premature."
The first dissent this year came during the September meeting, when Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, broke ranks and voted to increase the interest rates.
8.12pm GMT
Interest rates are up from de facto zero, Yellen thinks the US economy is fit, and for the first time in seven years the Federal Reserve isn't working with record-low, pro-expansion rates.
The key word in Fed's statement was "gradual". Financial markets would have been spooked had it talked about a "measured" increase in interest rates, because that would have suggested a repetition of the last cycle of US monetary tightening between 2004 and 2006, when there were 17 separate quarter-point jumps in the cost of borrowing. The drip-drip approach that eventually killed off the housing boom and prompted the sub-prime mortgage crisis.
Nobody expects a repeat of that, because much has changed since 2006. America's recovery has been weak by its own standards, the percentage of Americans working has fallen, and there is no real inflationary pressure. The "new normal" for interest rates is around 2%, not the 5%-plus they reached before the great recession.
Related: Federal Reserve ends Hamlet-like indecision over interest rates
8.09pm GMT
Manufacturing, the skewed employment participation rates, and other "pressures" do concern the fed, the chairwoman says, "but the underlying health of the US economy I consider to be quite sound."
I think it's a myth that expansions die of old age, I do not think that they die of old age. So the fact that this has been quite a long expansion doesn't lead me to believe that it's days are numbered.
But the economy does get hit by shocks and there are both positive shocks and negative shocks, so there is a significant odds that the economy will suffer some shock that we don't know about that will put it into recession.
8.06pm GMT
"Yes, we have tolerated inflation shortfalls that we thought would disappear," she says, without answering the question exactly of what the Fed would do if inflation continues to defy their expectations.
She answers a similar question about contingency plans by saying the Fed is focused on medium and long-term projections.
8.00pm GMT
"I'm not going to give you a simple formula for what we want to see" on inflation, Yellen says, dodging a question about the Fed's vaunted but still mysterious "medium term" plan.
So far the chairwoman has not described it in many terms aside from "transitory" and "gradual".
7.58pm GMT
Yellen says the "somewhat abnormally high level of part-time employment" is one of the markers that continues to concern her, and the Fed wants to watch what happens next with unemployment and inflation before taking action.
She repeats that it was very important to her not to wait too long and be "forced to tighten abruptly".
7.52pm GMT
The Fed will watch and wait, Yellen says, to see what this long awaited hike affects the markets.
I think it's prudent to be able to watch what the impact is on financial conditions and spending in the economy, and moving in a timely fashion enables us to do this.
She I think it's important not to overblow the significance of this first move, it's only 25 basis points. Monetary poilcy remainds accomodative. " We will be watching very carefully what happens in the economy."
7.50pm GMT
Yellen shows a slide with the committee members' predictions - the dot plot.
7.48pm GMT
Yellen lays out the committee's forecasts, saying the Fed will respond according to the health of the economy.
"A stronger growth or a more rapid increase in inflation than we currently anticipate would suggest that the neutral funds rate is rising more quickly than expected," she says.
7.42pm GMT
"We recognize that it takes time for monetary policy actions to affect future economic outcomes," Yellen continues.
Were the Fed to wait "too long, we would likely end up having to tighten policy relatively abruptly at some point to keep the economy from overheating and to keep inflation from [dramatically] overshooting our objective."
7.40pm GMT
Yellen lays out median growth projections: 2.2% for GDP growth for this year, 2.4% for next year.
The path of the median longer-run unemployment rate is slightly lower than the Fed had previously predicted, she adds.
Yellen says Fed will carefully monitor "actual and expected progress" on meeting the inflation goal.
7.37pm GMT
"Developments abroad" could still threaten the stability of the US economy, Yellen says, but nowhere near what they could have done this summer. The economy is strong enough to weather their fluctuations, she says.
Yellen notes that low energy prices and the appreciation of the dollar have "weighed on inflation" and held down import prices.
7.35pm GMT
Yellen outlines the criteria that she believes the economy has met for making an interest rate increase feasible. Unemployment is down to 5%, she says, with some caveats.
"That said, some cyclical weakness likely remains. The labor force participation rate is still below estimates " and wage growth has yet to show a sustained pickup."
7.32pm GMT
Janet Yellen begins her comments:
"This action marks the end of an extraordinary 7 year period during which the federal funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression."
7.28pm GMT
Federal Reserve chairwoman Janet Yellen will speak about the decision to nudge interest rates up in approximately two minutes.
You can watch here, or in the embedded video at the top of the blog.
7.25pm GMT
And the markets react with just that: a zig-zag of a reaction, followed by what's largely a return to pre-announcement levels. The Dow is up 99 points, Treasuries are down, and the Euro's back to where it was.
Wall Street calm after US rate hike (so far). Dow up 100 points after unanimous decision https://t.co/w3QzygP9Hm pic.twitter.com/EqBuEEzdPL
Look at stocks go. https://t.co/ho0lmaPOR0 pic.twitter.com/Cv24wnr0We
Euro more or less at the pre-FOMC level as Fed just delivered what markets had expected. pic.twitter.com/X8IYk87gsE
7.20pm GMT
The quickest of takes from financial journalists and investors, ahead of Janet Yellen's press conference to elaborate on the decision.
If the markets do next to nothing off this, it will be EXACTLY what Yellen and the Fed wanted.
#Fed uses word "gradual" twice in statement. Let's hope Yellen tells us more about what that means in 2:30pm press conference.
Key in Fed statement is slow expected pace of rate rises, to lower than normal, and long-term holding QE bonds & reinvesting dividends
Fed rate rise today is like a fine whiskey ... impressively smooth.
7.04pm GMT
The full statement from the board of the Federal Reserve on the historic increase in interest rates:
Information received since the Federal Open Market Committee met in October suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft. A range of recent labor market indicators, including ongoing job gains and declining unemployment, shows further improvement and confirms that underutilization of labor resources has diminished appreciably since early this year.
Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; some survey-based measures of longer-term inflation expectations have edged down.
7.01pm GMT
Interest rates will increase by 0.25%, the Federal Reserve has announced, the first hike after seven years of record lows.
The Fed's statement on the increase says the decision is based on the economy "expanding at a moderate pace", with spending and investment increasing at "solid rates" and an improved housing sector.
The Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen. "
Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent.
6.58pm GMT
From inside the Fed: "Chair is in the house. I saw her" says one journalist. "She is wearing blue."
To the infinity and beyond, Janet. #Fed
I think I'm gonna be sick.
6.53pm GMT
What's going to happen in seven minutes, when the Fed announces its plans for the fate of the economy?
A hike in interest rates, most likely, but nobody knows what Janet Yellen and her cohorts quite intend. HSBC and MarketWatch have taken a stab at prognostication.
A dovish hike scenario would reinforce HSBC's view that the dollar will weaken against its G-10 rivals in 2016. HSBC was one of the first major currency dealers to sour on the greenback. Back in the spring, the team, led by chief strategist David Bloom, accurately called the dollar's peak (at least, so far). The base case forecast calls for the euro to strengthen to $1.20 by the end of 2016.
If the Fed's statement doesn't adhere to the cautious profile that many have anticipated, the dollar would likely benefit from a "risk off" rally, leaving the Aussie, kiwi and many emerging-market currencies vulnerable "
"In the end, a [dollar] rally may sow the seeds of its own destruction as it would make delivery of additional rate hikes increasingly unnecessary. Short-term, however, we would not fight the [dollar] rally," HSBC said.
6.41pm GMT
As the clock ticks down to the Fed's big announcement, Janet Yellen and her fellows take over Twitter "
Wow - Yellen officially bigger than #JaneAusten #FedDecision https://t.co/cMZOcMuXqi pic.twitter.com/kh65uvpTU8
With under 60m left until the Fed announces its decision, what do Yellen's horoscopes say? https://t.co/isXCAdjLDX pic.twitter.com/9UqX57IiJJ
Part of my job today: playing bingo. You should play too at 2.30pm! #WSJYellenBingo https://t.co/oI3kspZwMc
6.32pm GMT
Anyone wondering whether the Fed reallywill raise rates this time might want to look back at Yellen's comments the last time they went up, long ago in June 2006, business editor Dominic Rushe writes.
Back then Yellen was president of the San Francisco Fed and argued against a raise -before deciding to vote with her colleagues for an increase.
"In general, I believe that we should do the right thing, even if it surprises markets, but in this case our public statements seem to have convinced the public that we will raise the funds rate today," she said then.
"If we didn't follow through, there would likely be some loss of credibility for policy."
6.24pm GMT
Fed watchers are responding to the (possibly) last minutes of the rock-bottom-interest-rates era with " mixed emotions.
Are any financial journalists going to announce their retirement after the hike? I feel like this would mark a good career bookend.
Drinking what could be my last cup of tea of the ultra-low-rate-era. Big moment.
One hour to go. #Fed pic.twitter.com/iuk4F5mamk
6.18pm GMT
My colleague Jana Kasperkevic is in Washington to hear from the chairwoman herself - she's sent a photo from the bowels of DC.
6.00pm GMT
This is your 60 minute warning! We have one hour to wait until a potentially historic rate rise (or serious market volatility if the Fed surprises us all)
Here's a quick guide of what to watch out for when the Federal Reserve makes its decision.
5.41pm GMT
Michael Gapen, Barclays' chief US economist, says the Federal Reserve's goal today is to raise interest rates and avoid causing any market turmoil.
The real trick today is to get off zero, but avoid a taper tantrum.
5.31pm GMT
We're into the last 90 minutes before the Fed decision hits the wires....
5.30pm GMT
Jack Welch, the legendary former boss of General Electric, believes the Fed should have bitten the bullet back in September.
Speaking on CNBC today, Welch argued that rates should have been raised three months ago - before the rout in the commodity market got underway:
"It would have been better to go last time actually. Conditions were better.
The economy is not any stronger. The commodities have gone further down."
Why the Fed has no choice on rates: @jack_welch https://t.co/GiyCQxnIMB pic.twitter.com/X9VYeUDDIM
5.25pm GMT
Janet Yellen faces the media 30 minutes after the interest rate decision hits the wires (2.30pm in Washington, or 7.30pm for UK readers)
That press conference will be as significant as the decision itself - as the Fed chair's comments will be microscopically examined by investors around the globe:
5.16pm GMT
The Financial Times has pulled together a handy guide to the Federal Reserve's decision today:
Here's a flavour:
The 10 officials setting US monetary policy are forecast to raise the range for the Fed funds rate - the interest banks charge each other overnight to lend reserves kept at the Fed - by a quarter percentage point from 0-0.25 per cent to 0.25-0.5 per cent.
Policymakers have been at pains to stress that their actions are dependent on the state of the economy, so expect them to point to the cumulative progress it has made since emerging from recession in 2009. The most recent bulletins from the labour market (211,000 jobs created in November) and inflation (a core measure hit 2 per cent last month) may have given officials the extra confidence they needed in order to move.
That the pace of increases is more important than the timing of the first one has arguably been the mantra of Fed officials this year. So should the rate be lifted, expect to hear more of that.
5.00pm GMT
After two thousand, five hundred and fifty six days of record low interest rates, dating back to December 2008, America has just two hours to wait until the Fed (possibly) ends the era of ultra-loose monetary policy.
Over on Wall Street, the tension is building, ahead of the announcement at 2pm local time (7pm GMT)
4.53pm GMT
European stock markets have closed for the night, meaning equity traders in the City must now sit and wait for the Fed.
There may well be some marked volatility tomorrow morning too, depending on the tone that Janet Yellen adopts in the press conference and it's worth bearing in mind that this could take a couple of days to work itself through the system.
4.46pm GMT
As well as the interest rate decision, the Federal Reserve will also give us a pre-Christmas treat - its latest economic forecasts.
And that means economists, analysts and journalists across the globe will be squinting at the latest "dot plot"; a chart showing where policymakers believe interest rates will be in the next few years.
"The dots are positioned for three to four [rate rises], and the market is positioned for two to three. It may seem out of sync with the dovish hike view."
4.34pm GMT
The yield, or interest rate, on US two-year government debt has hit 1%, for the first time since May 2010.
That's another sign that Wall Street is bracing for the Fed to start tightening monetary policy.
Here we go... US 2-year hits 1% yield for first time in 5+ years. pic.twitter.com/RJvAmvT4Ep
4.30pm GMT
The early rally on Wall Street is petering out.
The Dow Jones industrial average, which was up 100 points earlier, has just turned negative.
#US stocks retrace earlier gains before the #FOMC decision due at 19:00 GMT.
4.16pm GMT
I trust this tweet is useful to any readers in emerging markets, wondering how the Fed's decision will affect them:
Just to clear things up re: Fed and emerging markets. pic.twitter.com/Q21JypZmnz
4.11pm GMT
Joshua Mahony, market analyst at City spread-betting firm IG, also reckons shares could rally once Janet Yellen has spoken today:
The commentary surrounding today's announcement will be hugely important as this sets out expectations for future hikes.
With a notorious dove at the helm, it is highly likely that Yellen will avoid needlessly spooking the markets and instead focus on the fact rates will rise at a relatively gradual and leisurely pace.
3.57pm GMT
Brian Davidson of Capital Economics has nailed his trousers to the mast, and predicted that global stock markets will applaud a rate hike today.
In a research note to clients, Davidson says:
We think that a 25bp rise in the federal funds rate is likely to be seen as a vote of confidence in the US and world economy, and could boost global equity markets.
Not only do we expect multinationals in Japan and the euro-zone to receive a boost to their earnings via weaker currencies, but we think that there is more scope for corporate profit margins to rise in many DMs, given the stage of the business cycle in these countries.
3.42pm GMT
The wisdom of crowds...
In a @twitter poll yesterday, we asked you "Will the Fed hike rates?" Here are the results: 82% YES % " 18% NO pic.twitter.com/evutAQY0C0
3.32pm GMT
The foreign exchange markets are quiet today - but it could be the calm before the storm.
The dollar is currently up against the British pound, but flat against the euro:
Currency markets quiet in advance of expected #FOMC hike. RO #EURUSD 1.0929 -0.01% #GBPUSD 1.5012 -0.18% #USDJPY 121.84 +0.13%
3.17pm GMT
Here's a handy way of decoding the Fed statement in a few hour's time:
What kind of rate hike? @steveliesman's guide to reading the #Fed today pic.twitter.com/WF9iaLHzIq
3.13pm GMT
Ian Shepherdson, chief economist at Pantheon Macroeconomics, remembers the last time the Fed started raising rates.
Last time the Fed started tightening, they promised to be "measured". That ended well. Hope they don't promise to be "gradual" today.
3.08pm GMT
Three of the last four tightening cycles have seen the Federal Reserve hike rates steadily, as this chart from Credit Suisse shows:
2.57pm GMT
Scott Wren, senior global equity strategist at Wells Fargo Investment Institute in St. Louis, has told Reuters he expects that a dovish performance from Janet Yellen today (the so-called 'dovish hike')
"I think the ideal outcome today is that the Fed raises rates and they give us a lot of verbiage that says we're going to go slow."
"Yellen is a dove and she is going to remain a dove. She has to follow through and hammer home that they're not going to be in a hurry and that's what the market wants."
2.35pm GMT
The Wall Street opening bell is being rung, and trading is underway in New York.
Dow up 100 as Wall Street awaits Fed decision https://t.co/vG0JmDR4pm pic.twitter.com/H8O1scvK4r
2.27pm GMT
Here's the Federal Reserve's HQ in Washington today, where policymakers are pondering whether to end seven years of record low borrowing costs:
2.22pm GMT
Three months ago, there was genuine uncertainly over whether the Fed would raise interest rates or not (in the end they didn't, of course).
But today's decision is a no-brainer, at least according to Kully Samra, a managing director at investment manager Charles Schwab, who says:
"It is a foregone conclusion that the Fed is going to raise rates."
2.08pm GMT
Just five hours to go....
Waiting for the Fed pic.twitter.com/RwHv2Knb5v
1.54pm GMT
One thing is certain. Whatever the Fed say today will be a lot less alarming than the statement they issued on December 17 2008 as the biggest financial crisis in generations swirled.
By delicious timing, today is the seventh anniversary of the historic rate cut that brought the Fed fund rate down to almost zero.
The birth announcement of ZIRP https://t.co/7uzV3fytoW pic.twitter.com/B48MfJq1DN
1.29pm GMT
Hat-tip to Bloomberg's Lorcan Roche Kelly for this info:
#TheLastTimeTheFedHiked it was the end of a 2 year cycle that saw SEVENTEEN Fed rate rises. In case Yellen says 'slower pace than previous'
1.28pm GMT
The Jubilee Debt Campaign, the anti-poverty charity, has warned that a US interest rate rise would bring new pain to world's poorest countries.
Their director, Sarah-Jayne Clifton, says:
"Many developing countries are already suffering from a fall in prices of their commodity exports. An increase in US interest rates will compound this further, further weakening exchange rates and increasing debt payments.
1.13pm GMT
There are several reasons why the Fed should raise interest rates today, and just as many reasons for caution.
The "hike now" brigade can point to the jobless rate. At just 5%, it is close to the measure of 'full employment' where wages could soon spike (although today's UK employment report, showing record employment and lower wage growth, rather undermines that theory!)
The case for and against an interest-rate hike https://t.co/FBvxXL62Qj pic.twitter.com/uQR98zuks6
1.00pm GMT
Raising interest rates is not quite as simple a process as you might expect, especially if you're starting from zero.
The FT's Robin Wigglesworth has examined the process here, and explained why it might be bumpy.
Acting as a floor for now at 0.05 per cent, the overnight reverse repo programme, or Overnight RRP, is primarily aimed at money market funds, and is expected to do much of the heavy lifting.
In a typical RRP the Fed's market desk sells a Treasury bond from its portfolio to a money-market fund and agrees to buy it back the next day at a certain price, a process known as "repo", short for repurchase. In practice, the central bank's balance sheet does not shrink, but this sets a benchmark for cash interest rates paid by the Fed itself. These RRP operations will happen every business day between 12.45pm and 1.15pm in New York.
12.36pm GMT
The New York stock market is expected to follow Europe's lead, when trading begins in two hours time.
The futures market suggests the Dow Jones industrial average will jump by 104 points, or 0.6%, when Wall Street opens.
12.20pm GMT
CNBC points out that it's eleven and a half-years since the Federal Reserve began its last 'tightening cycle' (starting the process of raising interest rates) in summer 2004.
If the Fed hikes today, it will have been more than 11 years since the last tightening cycle cc: @steveliesman pic.twitter.com/8DYJ12DhiV
12.00pm GMT
In seven hours time, three Wall Street economists will either feel a bit daft or incredibly astute.....
Out of 105 economists surveyed by Bloomberg, 3 don't expect to see a hike today.
Here are the three economists. pic.twitter.com/MCR6ZDrybd
11.31am GMT
European stock markets are now rallying as investors anticipate that the long period of record low US interest rates will end tonight.
There are still more than seven and a half hours until the Federal Reserve announces its decision. As covered in the introduction, the Fed will probably hike rates from the current low of 0% to 0.25%, ending seven years of historically easy money.
Fed Chair Janet Yellen has already told Santa what she wants as an early Christmas present and only time will tell if she has been good enough to get it.
Over 95% of institutional analysts are calling for a 25 basis point increase and futures markets are factoring in an 80% chance that is what we will see.
11.07am GMT
The drop in wage growth is a reminder that many families will enter 2016 in a worrying financial position.
My colleague Heather Stewart writes:
Wage growth across the economy has slowed to 2%, underlining the financial challenges facing households in the run-up to Christmas.
The Office for National Statistics (ONS) said that average wages grew at an annual rate of 2% in the three months to October.
Related: UK jobs data: pay growth slows to 2%
10.58am GMT
Britain's bosses argue that they need to achieve higher productivity in order to fund pay rises.
Michael Martins, economic analyst at the Institute of Directors, says the UK labour market looks in good shape:
"Yet again, these latest jobs figures make for welcome reading. The facts are impressive, and, given the turbulence which is affecting many parts of the world, worth repeating. In nearly every aspect, the labour market is tightening. The employment rate is at its highest ever level, the unemployment rate is down to its lowest since well before the crash at 5.2%, and youth unemployment - always a tricky problem to solve - continues to fall impressively. All of this indicates we are closing in on full employment.
"Firms may be taking advantage of the low-inflation era to offer smaller nominal increases in salaries while employees who have benefitted from cheaper food and fuel prices may not be demanding as much.
Since so many jobs are still being created, and young and long-term unemployed people are moving back in to work, these new jobs may simply pay less, dragging down the average figures.
10.48am GMT
Classic economics teaching would suggest that wage growth should be accelerating as the unemployment rate drops (as firms are forced to stump up more to attract staff).
As Dr John Philpott, director of The Jobs Economist, points out, this isn't happening right now:
There is a palpable sense of "piyji(C) vu" in the labour market, a reminder of the initial phase of the economic recovery characterized by a jobs boom alongside weak productivity and pay growth.
What's most surprising it that for all the talk of mounting skills shortages employers appear perfectly capable of hiring at will without having to hike pay rates.
10.29am GMT
The pound is falling against the US dollar, losing half a cent to $1.4992.
Traders are calculating that the weak pay growth means there's even less chance that UK interest rates will rise soon.
Average earnings - still well below 2008 levels. Unprecedented in recent economic history & explains BoE caution pic.twitter.com/tmB2Ue2wJr
10.06am GMT
Today's report shows that Britain's bosses tightened the purse-strings in October.
Regular pay, excluding bonuses, rose by just 1.7% during that month. That dragged pay growth during the August-October quarter down to 2% from 2.5%.
In October UK total pay growth dipped to 1.9% which is real pay growth but shows a troubling fading #GBP #BoE
9.59am GMT
Here's the top line analysis of today's unemployment report, from the Office for National Statistics.
It shows that employment levels in Britain hit record highs, joblessness fall again, but wage growth went off the boil:
9.58am GMT
Unemployment falls - good, Wages also fall - not so good #gbp
9.49am GMT
Pay rises may be falling because employers have noticed that inflation has been hovering around zero all year.
Low inflation feeding into lower pay in the UK. GBP nods lower
9.45am GMT
This chart shows how UK pay growth slowed sharply last quarter:
9.41am GMT
The latest UK unemployment report is out, and it shows a sharp, and worrying, slowdown in pay growth.
The good news is that the unemployment rate has fallen to 5.2%, which is the lowest level since 2008 - the start of the financial crisis. It hasn't been lower since January 2006.
9.32am GMT
Investors should avoid going anywhere too exotic over Christmas, as the Federal Reserve could provoke fresh upheaval in the markets.
That's according to Peter Rosenstreich, head of market strategy at Swissquote Bank.
We are unconvinced that global markets will stabilize after the FOMC decision, so traders should keep their vacations local.
There have been worrying swings in high yield credit spreads (and Third Avenue's collapse) indicting the debt market's anxiety with adapting to the new tightening era. As pointed out by the Financial Times today the $1.3tn junk bond markets has relied heavily on endless cheap money. While so far only the energy sectors have been truly effected we suspect that defaults will quickly spread as the cost of funding swiftly rises."
9.01am GMT
Tension is rising in the City, even though there's AGES until the Fed delivers its decision (at 7pm GMT or 2pm East Coast time)
Only 10hrs until the decision! *grits teeth, shakes desk*
Fed watchers. Today. pic.twitter.com/1ZmzETDk0F
8.58am GMT
Kit Juckes, top currency strategist at French bank Socii(C)ti(C) Gi(C)ni(C)rale is Fed up (geddit?!) after months of speculation about today's central bank meeting, and the twists and turns in the foreign exchange market.
At this point, my brain's scrambled. Yesterday was all about positions being taken off, but did I know that would mean option expiries taking EUR/USD sharply lower in the afternoon? No I did not...
We've waited so long for this policy move that the initial reaction may be meaningless. Beyond the very short term however, the US economy will go on growing, the Fed will hike further, and the dollar will rally through 2016.
8.55am GMT
A cautious start to trading in Europe has seen some stock markets dip into the red:
It's finally here! December's Fed Wednesday is upon us and with it the likely end to the year-long uncertainty over when exactly the central bank is going to raise interest rates.
Yet with nothing certain until the big reveal this evening the markets are looking pretty jittery, the European open suffering a case of pre-game nerves after yesterday's aggressive rebound.
8.43am GMT
It is exactly seven years since the Federal Reserve cut interest rates to their current record lows of between zero and 0.25%.
We were over-optimistic about the pace of growth in large part because we didn't anticipate the slowdown in productivity growth that we've seen. However, from a cyclical perspective, the economy has recovered in fact more quickly than we anticipated in that the unemployment rate has fallen more quickly than we thought it would, indicating that we have moved back towards something approaching full employment.
Over the last three years, the unemployment rate has fallen about 3 percentage points which is relatively rapid, so, in that respect, the economy has actually done a little better than we have anticipated but in terms of overall growth it's been less good.
8.35am GMT
Germany has outperformed France (again).
The German private sector is growing at a healthy rate this month, with the 'composite PMI' coming in at 54.9, close to November's 55.2.
LATEST: German economic expansion is accelerating, manufacturing and services index suggests https://t.co/gLZnGaHCEs pic.twitter.com/ubYIYqV91g
8.19am GMT
The first economic data of the day is disappointing.
France's private sector has slowed to near-stagnation this month, with service sector firms reporting a slump in new business following November's terrorist attacks.
"French private sector output growth nearly ground to a halt at the end of 2015 amid faltering new business intakes.
A slowdown in the dominant service sector was the driver, with some panellists indicating that their new business intakes had been impacted following the recent terrorist attacks.
8.12am GMT
My US colleague Jana Kasperkevic has pulled together a guide to today's Federal Reserve meeting:
Related: Will interest rates rise? Your guide to the Fed's upcoming meeting
8.08am GMT
There are no early dramas in the European sovereign debt markets.
Government bonds are changing hands at similar prices to last night, suggesting we're in a holding pattern ahead of the Fed:
Minimum activity in bonds ahead of FOMC decision as rate hike fully priced in after 7yrs of zero interest rate pol. pic.twitter.com/1UnvSvaFRT
I am already tired of the #Fed. And even the new concept of 'dovish hike'.
7.59am GMT
Central bank decision rooms are rarely places of peace and tranquility (as regular observers of the European Central Bank know well!).
And the members of the Federal Reserve's Open Market Committee (FOMC) are unlikely to be united at today's meeting.
Given the Fed's ability to surprise and the current uncertain environment does it seem likely that the Fed will do as the market expects, or could we see a seriously split vote of at least three dissenters, with Evans, Brainard and Tarullo the most likely candidates? We need to consider the divergent nature of views aired in recent weeks which are bound to come into play and there is also the remote possibility that we could see a fudge that pleases nobody, and catches the market by surprise.
A surprise could take the form of a band hike of 12.5 basis points, as opposed to 25, or the removal of the lower bound to a fixed rate of 0.25%.
Moving the rate by 12.5 basis points wouldn't be an unusual state of affairs given that this was done on a periodic basis in the 1980's, but it would fly in the face of market expectations, and would certainly be a case of back to the future.
7.52am GMT
Over in Asia, shares have bounced overnight as investors digested the prospect of a US interest rate hike tonight.
The rally we are seeing in equity markets indicates that they are likely to respond well to a rate hike at the decision today as certainty in the direction of Fed policy should bring some stability to markets.
7.39am GMT
City investors are approaching Fed Day in a cautious mood.
The FTSE 100 is expected to inch up by around 5 points when trading begins, having surged by 143 points, or 2.45%, yesterday.
Traders see 78% chance of hike today (Fed Funds Futures implying). Stocks rallying, volatility calming into decision pic.twitter.com/h5bxJijz80
7.19am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Good morning and happy FOMC day!
Ahead of the Fed, we've got euro area flash PMIs (topish services; Paris attacks) and final Nov HICP (upward revision likely).
Continue reading...