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Markets eye UK services survey as Fed cautious on rate hikes – business live

Discussion in 'Market News' started by Lily, Jan 5, 2017.

  1. Lily

    Lily Forum Member

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    UK services PMI to shed further light on strength of economy in fourth quarter

    7.49am GMT

    The US Federal Reserve is cautious over the pace of interest rate hikes this year, amid a great deal of uncertainty over how much fiscal policy loosening the Trump administration will unleash, i.e. tax cuts.

    Last night the minutes of the American central bank’s 14 December meeting which concluded with a 25 basis point rate hike, the first in a year, and only the second since the 2008 financial crisis. The minutes showed that only half of Fed officials included some form of fiscal policy loosening into their economic projections.

    Assuming that the incoming Trump administration and the Republican-controlled Congress do agree on a major package of tax cuts by mid-year, however, we still think there will be four rate hikes this year, albeit with three of those hikes coming in the second half of 2017.

    The recurring theme in the minutes is the uncertainty over the direction of fiscal policy that Donald Trump’s unexpected election victory has thrown up. Neverthless, almost all participants “indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies.” Some participants thought the upside risks to inflation had increased too. The dollar’s subsequent rally will help to keep a lid on inflation next year, but all that will do is partly offset the impact of the rally in crude oil prices.

    7.38am GMT

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

    This morning at 9:30am we’ll get the UK services purchasing managers’ index from Markit/CIPS for December, a closely watched survey. It is expected to show a slight easing in activity, to 54.8 from 55.2. The sister surveys for manufacturing and construction showed both sectors growing at a robust pace, suggesting the economy was stronger than many expected in the fourth quarter, despite the uncertainty caused by the Brexit vote.

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