That’s all for today. Here’s a quick round-up.
The US Federal Reserve has pressed on with the normalisation of interest rate policy, by hiking borrowing costs for the second time this year. The Fed funds rate is now 1% to 1.25%.
The Fed is also broadly sticking to its previous guidance for interest rate rises over the next couple of years. Chair Janet Yellen tried to cool speculation that recent weak inflation might make the central bank more dovish.
The Fed remains confident that the US economy is recovering, saying:
The Committee continues to expect 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.
Economists said the move shows that the Fed believes the recovery is on track.
Ian Kernohan, senior economist at Royal London Asset Management, says:
“The Fed made little changes in the language or projections for further interest rate hikes.
They acknowledged that inflation was running below target, but also that job gains have been solid. We expect another rate hike and some balance sheet normalisation before the end of the year.”
In another sign of confidence, the Fed outlined its plans to start selling off some of the assets bought during its stimulus programme.
During a press conference, Janet Yellen said she’d not discussed her future with president Trump. She remains committed to serving her full term (to February 2018).
Wall Street took the news in its stride, with the Dow Jones ending the day at a new high thanks to rising financial stocks.
The US dollar also strengthened during Yellen’s press conference, as traders anticipated further rate hikes down the line.
Scott Minerd of investment firm Guggenheim Partners sums it up:
That’s all for tonight. Thanks for reading and commenting. GW
Dow closes at record high but Nasdaq dips
DING DING goes the closing bell on Wall Street.
And the Dow Jones industrial average has finished at a record high, up around 0.2%
But the technology-focused Nasdaq index has dropped by 0.6%.
Capital Economists have provided a brisk summary of the Fed’s decisions today:
As widely expected, the Fed raise its policy rate target by an additional 25bp today, to between 1.00% and 1.25% and, despite the recent weakness of core inflation, Fed officials still expect to raise that rate once more in the second half of this year.
The Fed also laid out plans for shrinking its balance sheet, with the initial run-off even smaller than we had previously expected, although it offered no specifics on the timing of when that normalisation would begin other than “this year”.
Wall Street isn’t too happy with Janet Yellen’s comments.
The Nasdaq index has dropped by 1% after the Fed chair downplayed recent weak inflation data and signalled that US interest rates will continue to rise over the next couple of years.
The S&P 500 is down 0.25%, while the Dow Jones industrial average is flat.