• Dec. 8, 2016, 9:58 pm

Markets rally ahead of Fed US interest rate decision – business live

Powered by Guardian.co.ukThis article titled “Markets rally ahead of Fed US interest rate decision – business live” was written by Graeme Wearden, for theguardian.com on Wednesday 16th December 2015 16.16 UTC

4.16pm GMT

I trust this tweet is useful to any readers in emerging markets, wondering how the Fed’s decision will affect them:

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.

He also produced this graph, showing how stock markets have typically rallied after a Fed hike – although Wall Street has usually lagged behind other developed markets (such as the City of London, and Tokyo).

Capital Economics research

Davidson reckons the US stock market will ‘edge higher’ in 2016, with other developed markets (DMs) doing better:

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…

It may not be scientific (there were just 89 votes!) but it highlights that the markets are expecting the Fed’s more hawkish members to carry the day.

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:

3.17pm GMT

Here’s a handy way of decoding the Fed statement in a few hour’s time:

3.13pm GMT

Ian Shepherdson, chief economist at Pantheon Macroeconomics, remembers the last time the Fed started raising rates.

(here’s the Fed statement from June 2004)

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:

Fed fund rate

History probably won’t repeat itself this time — Fed chair Janet Yellen is likely to emphasise that future rate hikes will be gradual.

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.”

dec16usmarket1

US stock markets are up in early trading Photograph: Thomson Reuters

2.35pm GMT

Shares rise on Wall Street ahead of the Fed

Wall Street opening bell

Wall Street opening bell Photograph: Bloomberg TV

The Wall Street opening bell is being rung, and trading is underway in New York.

It could be a historic session – the day that the Federal Reserve begins the long process of normalising monetary policy.

And right now, investors are facing that prospect in good heart.

The Dow Jones industrial average has jumped by 0.9% in early trading, gaining 164 points to 17,689.

The S&P 500 (a broader measure of the stock market) is up 0.6%, while the tech-heavy Nasdaq is up 0.9%.

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:

A man walks past the Federal Reserve in Washington, December 16, 2015. The U.S. central bank is widely expected on Wednesday to hike its key federal funds rate by a modest 0.25 percent. It would be the first tightening in more than nine years and a big step on the tricky path of returning monetary policy to a more normal footing after aggressive bond-buying and near-zero borrowing costs. REUTERS/Kevin Lamarque
Bollards help secure the entrance to the Federal Reserve in Washington, December 16, 2015. The U.S. central bank is widely expected on Wednesday to hike its key federal funds rate by a modest 0.25 percent. It would be the first tightening in more than nine years and a big step on the tricky path of returning monetary policy to a more normal footing after aggressive bond-buying and near-zero borrowing costs. REUTERS/Kevin Lamarque

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.”

(The latest pricing from the financial markets suggests there s a 78% chance of a rate hike tonight)

2.08pm GMT

Just five hours to go….

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.

And here’s how they announced it:

1.29pm GMT

Hat-tip to Bloomberg’s Lorcan Roche Kelly for this info:

Updated at 1.29pm GMT

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.

It’s already been a tough year for emerging market currencies. The Malasian Ringgit, for example, has shed almost a quarter of its value against the US dollar since January. Brazil’s Real has tumbled by over 40%.

File photo illustration of Malaysian ringgit notes<br>Malaysian ringgit notes are seen among other currency notes in this photo illustration taken in Singapore in this March 14, 2013 file photo. The Federal Reserve is widely expected to hike interest rates for the first time in almost a decade on Wednesday. REUTERS/Edgar Su/Files FROM THE FILES - BRACING FOR A FED RATE HIKESEARCH “FED RATE HIKE” FOR ALL 36 IMAGES

Malaysian ringgit notes. Photograph: Edgar Su / Reuters/Reuters

Updated at 1.45pm GMT

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!)

Inflation is picking up (although at just 0.5% it’s hardly red-hot). And there’s the argument that a modest rate rise now reduces the danger that Janet Yellen has to aggressively hike in the future.

But this is not an easy call. The Federal Reserve needs to consider the impact on the world economy. Huge amounts of capital flowed into emerging markets in recent years, and is now heading back to the US – destabilising developing economies and weakening their currencies. That could have a knock-in effect on the US economy, especially if a stronger dollar makes exports less attractive overseas.

And while the US labour market looks solid at first glance, wage growth is still modest. And the proportion of people who have dropped out of the labour market is the highest since 1977.

Ultimately, the Fed may conclude that raising rates today is simply less disruptive than shocking the markets by leaving them on hold.

This chart from the Economist (printed before yesterday’s inflation data showed CPI had risen from 0.2% to 0.5%), outlines the issues in more detail:

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.

How the US Federal Reserve intends to raise rates

As Robin explains, the Fed’s traditional weapon is its “funds rate”, which has been stuck at between zero and 0.25 per cent for exactly seven years.

This rate determines how much commercial banks are paid to leave funds at the Fed’s vaults. By keeping it so low for so long, the Fed has been trying to encourage banks to put their money to work elsewhere.

dec15fedft

Most economists believe that the Fed will raise the funds rate to 0.5% at today’s meeting. That should ripple out across the market, as banks won’t be prepared to lend to anyone for less than they could get from the Fed.

But in practice, many lenders cannot access the Fed’s fund rate directly, And with so much money swirling in the system,

So the Fed might use a different weapon to push borrowing costs up.

Over to Robin….

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.

The Fed might need to boost its RRP activities considerably, in order to transmit higher borrowing costs into the market. And that means that the process might not be as smooth as one might like….

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.

That last cycle lasted two years, and was ended by the credit crunch in 2007.

The next cycle is likely to move slowly, with the Fed possibly only raising interest rates twice next year….

Updated at 1.29pm GMT

12.00pm GMT

In seven hours time, three Wall Street economists will either feel a bit daft or incredibly astute…..

11.31am GMT

European stocks jump ahead of Fed decision

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.

Alastair McCaig of IG says a rate hike is widely expected:

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.

And that certainty is pushing shares higher. It follows a strong session in Asia, where the Japanese and Australian markets both gained more than 2%.

There’s also plenty of speculation that we’ll get a ‘dovish hike’; Janet Yellen may emphasise that rates will still rise slowly, and only if the data justifies it.

Britain’s FTSE 100 of top blue-chip shares is leading the rally risen by 48 points to 6066, a gain of 0.8%.

European stock markets today

European stock markets today Photograph: Thomson Reuters

European markets are being boosted by this morning’s PMI surveys from Markit. They show that the eurozone’s private sector has posted its strongest quarter in four and a half-years.

Eurozone growth

Eurozone PMI Photograph: Markit

Updated at 11.32am GMT

11.07am GMT

News story: UK pay growth slows

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.

That marked a significant weakening from the 2.4% growth seen in the previous three-monthly period. With inflation running at just 0.1%, living standards are still rising, on average. But anaemic pay growth undermines hopes that household balance sheets will continue to improve after the long post-recession squeeze that saw pay flat or falling for several years.

Once bonuses were included, pay growth in the three months to October was still just 2.4%, down from 3% over July to September, the ONS said.

Here’s her story on today’s unemployment report:

10.58am GMT

IoD: We’re heading towards full employment

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.

But on wages, Martins points out that productivity increases have not matched this year’s pay rises.

He also suggests that the sight of inflation turning negative this year may have undermined the case for bumper pay claims.

“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 “pàyjé 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

Pound hit by poor wage growth

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.

Bank of England policymakers have repeatedly said they want to see solid wage growth before hiking borrowing costs. So the sharp drop in average pay rises, to 2%, gives them another reason to sit tight.

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%.

Even when bonuses are included, total pay dropped to 1.9% in October – much lower than the 3% recorded in July-September.

Updated at 10.06am GMT

9.59am GMT

Unemployment: The Key Points

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:

  • There were 31.30 million people in work, 207,000 more than for May to July 2015 and 505,000 more than for a year earlier.
  • There were 22.88 million people working full-time, 338,000 more than for a year earlier. There were 8.42 million people working part-time, 167,000 more than for a year earlier.
  • The employment rate (the proportion of people aged from 16 to 64 who were in work) was 73.9%, the highest since comparable records began in 1971.
UK employment rate

UK employment rate Photograph: Thomson Reuters
  • There were 1.71 million unemployed people (people not in work but seeking and available to work), 110,000 fewer than for May to July 2015 and 244,000 fewer than for a year earlier.
  • There were 939,000 unemployed men, 153,000 fewer than for a year earlier. There were 774,000 unemployed women, 91,000 fewer than for a year earlier.
  • The unemployment rate was 5.2%, lower than for a year earlier (6.0%). It has not been lower since the 3 months to January 2006. The unemployment rate is the proportion of the labour force (those in work plus those unemployed) that were unemployed.
UK unemployment rate

UK unemployment rate Photograph: ONS
  • There were 8.93 million people aged from 16 to 64 who were economically inactive (not working and not seeking or available to work), 63,000 fewer than for May to July 2015 and 126,000 fewer than for a year earlier.
  • The inactivity rate (the proportion of people aged from 16 to 64 who were economically inactive) was 21.9%, lower than for a year earlier (22.3%). The inactivity rate has not been lower since October to December 1990.
  • Comparing August to October 2015 with a year earlier, pay for employees in Great Britain increased by 2.4% including bonuses and by 2.0% excluding bonuses.

9.58am GMT

9.49am GMT

Pay rises may be falling because employers have noticed that inflation has been hovering around zero all year.

The UK consumer prices index is currently 0.1%, meaning pay rises are not being eaten up by inflation.

But real wage increases of 2% are still modest in historical terms, especially when you remember that workers suffered falling real wages for several years after the financial crisis began.

9.45am GMT

This chart shows how UK pay growth slowed sharply last quarter:

UK pay

UK pay growth Photograph: ONS

9.41am GMT

UK wage growth slows, as unemployment rate falls again

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.

And the employment rate has risen to 73.9%, the highest since comparable records began in 1971.

BUT wage growth has slowed alarmingly.

Average earnings, excluding bonuses, increased by just 2% annually in the three months to October. That’s sharply down on the 2.4% recorded in the three months to September, and is the slowest rate since early 2015.

Pay including bonuses rose by 2.4% during the quarter, down from 3% in the three months to September.

It suggests that the welcome boost in real earnings earlier this year may already be petering out….

More to follow….

Updated at 10.09am GMT

9.32am GMT

Analyst: Fed decision will create more volatility

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.

He says that today’s “highly anticipated and overly hyped FOMC December meeting” will probably spark significant volatility — many younger traders on Wall Street haven’t experienced a rate hike before, after all.

We are unconvinced that global markets will stabilize after the FOMC decision, so traders should keep their vacations local.

Rosenstreich also predicts that higher borrowing costs will force more junk bonds into default:

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.”

(Third Avenue announced last week it was shutting its Focused Credit Fund, which invested in high-yield (and thus riskier) assets)

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)

8.58am GMT

Kit Juckes, top currency strategist at French bank Société Générale 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:

European stock markets this morning

European stock markets this morning Photograph: Thomson Reuters

After strong rallies yesterday, investors may be getting a dose of pre-Fed jitters:

Conner Campbell of SpreadEx explains:

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

Key Economic Leaders Testify At AIG Trial<br>WASHINGTON, DC - OCTOBER 09: Former Chairman of the Federal Reserve Ben Bernanke arrives at U.S. Court of Federal Claims to testify at the AIG trial October 9, 2014 in Washington, DC. The trial is the result of a class action lawsuit brought against the US government by shareholders of AIG claiming that the government violated their rights by grabbing a majority stake in the company as part of the bailout of AIG in 2008. (Photo by Alex Wong/Getty Images)

Former Chairman of the Federal Reserve Ben Bernanke, the last person to raise US interest rates Photograph: Alex Wong/Getty Images

It is exactly seven years since the Federal Reserve cut interest rates to their current record lows of between zero and 0.25%.

That historic decision was taken in December 2008 — a few weeks after Barack Obama won the US presidential election. At the time, few people thought rates would stay so low for so long.

Indeed, Ben Bernanke has admitted as much. The former Fed chair told Marketwatch that policymakers expected the economy would grow faster:

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.

Updated at 11.11am GMT

8.19am GMT

French private sector growth hit by Paris attacks

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.

Data firm Markit’s composite output index, which tracks thousands of French firms, fell to 50.3 in December from 51.0 in November. That’s worryingly close to the 50-point mark that separates growth from contraction.

Although manufacturing firms reported faster growth, service sector providers experienced the slowest rise in new work since August.

Jack Kennedy, senior economist at Markit, explains:

“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.

Shares in hotel groups and airlines fell in the aftermath of the Paris atrocities, as analysts warned that tourism would suffer.

France’s economy expanded by just 0.3% in the last quarter, not enough to lower its record unemployment rate. This PMI report suggests that growth may be slowing…

French composite PMI vs growth

French composite PMI vs growth Photograph: Markit

Updated at 11.11am GMT

8.12am GMT

My US colleague Jana Kasperkevic has pulled together a guide to today’s Federal Reserve 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:

Some analysts, such as London Capital Market’s Ipek Ozkardeskaya, just want the whole thing to be over:

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.

Michael Hewson of CMC Markets reckons as many as three policymakers could oppose a 25 basis point hike in rates today:

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.

Hewson also suggests that the Fed could surprise investors:

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

Asian markets rally ahead of the Fed

Tokyo shares rise on European and US gains<br>epa05070695 Pedestrians stand in front of a stock markets indicator board in Tokyo, Japan, 16 December 2015. Shares in Tokyo rose strongly after two days of losses. Encouraged by gains in Europe and the United States, the benchmark Nikkei 225 Stock Average closed up 484.01 points, or 2.61 per cent, to close at 19,049.91. EPA/FRANCK ROBICHON

A stock markets indicator board in Tokyo today. Photograph: Franck Robichon/EPA

Over in Asia, shares have bounced overnight as investors digested the prospect of a US interest rate hike tonight.

In Tokyo, the Nikkei reversed two days of losses to close 2.6% higher. And Australia’s S&P/ASX 200 bounced back from a three-year low, gaining 2.4%.

The rally suggests that traders are pleased that the seemingly endless speculation over a Fed rate hike will probably end today.

As Angus Nicholson of IG put it:

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.

7.19am GMT

Introduction: Welcome to Fed Day

Bloomberg

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

The waiting is nearly over. In just under 12 hours time, America’s central bank will announce whether it has taken the plunge and raised interest rates for the first time in nearly a decade.

Today’s Federal Reserve decision is the last major financial event of the year, and it really is a case of “all eyes on the Fed”.

A lot has happened since Ben Bernanke hiked interest rates in June 2006, to 5.25% – which may seem stratospheric to younger readers.

A year later the credit crunch struck, followed by the collapse of Lehman Brothers, the global recession, and unprecedented stimulus packages from the world’s central bankers which left US interest rates at just 0%-0.25%.

Investors are widely expecting the Fed to start tightening monetary policy today. But if that happens, Fed chair Janet Yellen will probably take a dovish tone when she addresses the media at a press conference.

Federal Reserve Chairman Janet Yellen.

Janet Yellen Photograph: Mark Wilson/Getty Images

Yellen is likely to emphasise that future rate moves will remain “data-dependent”, meaning borrowing costs will stay low for some time. But will that be enough to prevent fresh turmoil in the foreign exchange, equities and commodity markets?

The start of the Fed tightening cycle will surely cause some ructions in the markets in the weeks ahead. Anticipation of a hike has already driven emerging market currencies down and driven junk bonds into dangerous territory.

But there will surely also be some relief that the waiting is finally over. This saga has gone on long enough…..

What else is afoot?

The Fed decision really is the main event today.

But we can while away the time with new surveys of the eurozone economy, the latest UK unemployment data, and a second estimate of euro inflation.

  • 8am-9am GMT: Manufacturing and service reports from Germany, France and the eurozone
  • 9.30am: UK unemployment for November
  • 10am: Final estimate of eurozone inflation for November
  • 7pm: Federal Reserve decision
  • 7.30pm: Janet Yellen’s press conference

Updated at 7.37am GMT

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