And finally... here’s a round-up of expert reaction to the Fed meeting.

Anna Stupnytska, global economist at Fidelity International, says the Federal Reserve sent a dovish message today (helping to push Wall Street to those fresh highs).

The combination of incredibly easy financial conditions, which hardly tightened over the past few weeks, accelerating vaccination campaign, another substantial fiscal package recently legislated and re-opening prospects on the horizon is certainly boosting Fed’s tolerance to higher yields.

“While inflation and growth forecasts were revised up over the forecasting horizon, the median dot remained unchanged, suggesting no hikes through 2023. This sends a dovish message, revealing that the Fed is serious about pursuing its new FAIT [flexible average inflation targeting] framework.”

Michael Pearce of Capital Economics believes the FAIT framework could allow rates to stay on hold for the next few years:

The updated economic projections released after the Fed’s mid-March meeting show that officials expect strong economic growth this year to have only a transitory impact on inflation, which explains why most still aren’t thinking about thinking raising interest rates.

Even if inflation proves more stubborn, we expect their new framework will allow them to justify leaving rates unchanged over the next few years.

Paul O’Connor, Head of Multi-Asset at Janus Henderson, says Jerome Powell has deferred some tougher decisions, notably about tapering.

As widely expected, the Fed’s new growth forecasts were a major uplift to December’s stale predictions, reflecting recent improvements in US macro momentum, the new administration’s fiscal stimulus and vaccine-boosted reopening trends. Real GDP forecasts of 6.5%, 3.3% and 2.2% for 2021, 2022 and 2023 and Core PCE forecasts of at 2.2%, 2.0% and 2.1% were typically quite close to consensus expectations.

What was most interesting here was that, despite these forecasts and the Fed’s projected decline in the unemployment rate from over 6% today to 3.5% in 2023, the consensus view from Fed governors is that they expect to keep interest rates on hold throughout 2023. While bond markets can take comfort from the Fed delivering on its promise to go slowly with rate hikes, despite inflation creeping above the 2% target, the monetary tide is nevertheless turning. Whereas, back in December, only five of 18 Fed officials predicted higher rates in 2023, seven now expect a rate hike in that year and a third of the committee expects that more than one will be needed. Four participants now project hikes for 2022, compared to just one in December.

The Fed delivered a fairly dovish message to the markets today, but the big debates have been deferred not decided. While it is not hard for the Fed to remain patient, while projecting inflation bouncing around target over the forecast horizon, the pressure to tighten policy is likely to intensify if the US recovery accelerates into the summer, as everyone expects. Many of the questions that have been avoided today will linger over the months ahead and may well have become more urgent by the June FOMC. By then, the Fed might be prepared to take the first decisive step away from the current super-accommodative monetary stance by indicating when it will start to taper QE. If macro momentum continues to build, it might also be confirming market expectations of rate hikes in 2023 at that meeting. The June FOMC could be a more challenging meeting for Chairman Powell than today’s turned out to be.

Hugh Gimber, global market strategist at J.P. Morgan Asset Management, reckons we could see more volatility this year:

“Chair Powell had to walk a tightrope in the press conference, balancing a rosier outlook against the Fed’s commitment to let the economy run hot. The recent swings in Treasury yields highlight that investors are still not fully comfortable with numerous aspects of the Fed’s new target – what exactly their tolerance is for higher inflation, what inclusive full employment looks like in practice and how close to these goals the Fed needs to be before it begins to remove accommodation.

“As growth picks up sharply in the coming months, all of these uncertainties point to the potential for ongoing volatility in bond markets. This may create periodic bouts of instability in risk assets but overall we expect the vaccines, stimulus cheques and consumers looking to make up for lost time to translate into strong corporate earnings in the second half of the year, which should propel stock markets higher by year end.”

Goodnight! GW

Both the Dow and the S&P 500 have both closed at record highs, in fact, as worries about US interest rate hikes are soothed by the Fed.

Stocks have closed higher on Wall Street, as concerns that the Fed was moving towards an earlier interest rate hike faded.

The Dow Jones industrial average has closed 189 points higher at 33,015, a gain of 0.6% today, as traders welcomed the upgraded growth forecasts.

The broader S&P 500 index shrugged off its earlier losses too, to end the day up 0.3% at 3,974 points, up 11.41 points.

The Nasdaq also bounced, as US bond yields fell back, with the tech index closing 53 points higher at 13,525, up 0.4% (having been down 1% before the Fed statement hit the wires.)

Q: Households are sitting on a lot of excess savings. How much will that affect inflation, and will it be transitory?

Powell says the Fed is looking at how people will spend when the economy reopens, and used very conservative, mainstream assumptions.

There is very likely to be a step-up of inflation in March and April, when last year’s low numbers drop out of the 12-month window. That ‘fairly significant pop’ will wear off quickly, though.

Past that, as the economy reopens, people will spend more - in restaurants, theatres, and on travel. As Powell puts it:

You can only go out to dinner once per night, but a lot of people can go out to dinner.

There will also be bottlenecks - firms won’t be able to service all the demand.

That will lead to a relatively modest increase in inflation, Powell predicts - a “one-time bulge in prices”, but it won’t change inflation going forward.

Q: Given the problems in Europe’s economy, could the eurozone drag the US recovery down?
Fed chair Jerome Powell agrees that the US and European recoveries are diverging, as happened after the financial crisis. As before, the US is leading the global recovery. He points out that the Fed’s mandate is domestic - maximum employment and price stability - but it does monitor developments abroad. Very strong US demand, as the economy improves, is going to support global activity as well, he predicts, as it should mean the US imports more from abroad.

And Powell adds:

I’d love to see Europe growing faster. I’d love to see the vaccine rollout going more smoothly.

But he’s not worried about the impact on the US economy. The US is on a very good track, Powell continues, with very strong fiscal support coming, vaccinations going quickly, and cases coming down.

I think we’re in a good place.

But despite these stronger economic forecasts, the Fed is not itching to raise interest rates.

The latest dot plot shows that four policymakers expect the first interest rate rise to come next year (up from one previously).

And seven now expect interest rates to be higher by 2023 - up from five before.

But the remaining 11 Fed policymakers think interest rates will not have risen before the end of 2023, which will calm concerns that the US central bank could tighten policy sooner than expected.

The Federal Reserve has also raised its growth forecast for the US economy.

It now expects US GDP to grow by 6.5% this year, up from 4.2% forecast back in December. That’s a pretty decent upgrade.

The latest economic forecasts also predict growth of 3.3% in 2022, then 2.2% in 2023.

The Fed also predict that US unemployment will drop to 4.5% by the end of 2021.

In a statement outlining today’s decisions, the Fed says:

The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak. Inflation continues to run below 2 percent. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.

Here we go. The Federal Reserve has voted to leave US interest rates unchanged, and also not changed its quantitative easing stimulus programme....

European markets are still subdued as investors anticipate the Federal Reserve’s monetary policy decision later today.

The UK’s FTSE 100 index is now down 42 points, or 0.6%, at 6761, down from the two-month high seen yesterday.

Miners are still among the fallers, along with technology companies -- software group Sage (-2.75%) and online grocery business Ocado (-3.9%).

With US 10-year Treasury yields still at a 13-month high, there’s some edginess as investors ponder how fast inflation will pick up as the global economy recovers, and how central banks might respond.

The tech-focused Nasdaq is down around 1% in pre-market trading [rising inflation and borrowing costs are bad for tech companies, as it makes their future earnings less attractive today].

Many investors are keen to see the Federal Reserve’s latest forecasts for growth, and possible interest rate rises, as Joshua Mahony, senior market analyst at IG, explains:

The Federal Reserve looks to take centre stage today, with traders seeking to gauge their outlook in the face of rising inflation and treasury yield expectations. The ECB may have decided to act in a bid to dampen the rise in yields, but Powell has shown little desire to target that trend.

Inflation looks to be a key topic for markets going forward, with reopening efforts expected to bring a sharp surge in prices. While the Fed and BoE are both aware of the short sharp rise in inflation that could be coming over the coming months, the big question is just how tolerant these central banks will be until they decide to tighten policy. The Fed dot plot will be crucial today, with Joe Biden’s success on the stimulus and vaccination front since December meaning we are likely to see many members adjust their interest rate forecasts accordingly.

Over in America, the number of new house-building projects and permits for new builds have both tumbled, as bad wintery weather hits construction.

Housing starts fell by 10.3% month-on-month in February, to an annual rate of 1.421m.

That’s 9.3% less than a year ago (just before the first wave of the pandemic),and follows a 5.1% monthly drop in housing starts in January.

Building permits (giving permission for a new house) shrank by 10.8% month-on-month, to an annual rate of 1,682,000. That is still 17% above the level seen in February 2020, though.

This sharp decline in housing starts is partly due to the bad weather which struck the US last month. Winter storms caused chaos in some southern states, making it extremely hard to begin construction work.

Supply issues, such as the cost and availability of lumber and other building materials, could also be slowing building projects:

Here’s some early reaction:

The German government’s top economic advisers have cut their growth forecasts for this year, warning that the latest wave of Covid-19 is hurting the economy.

In their latest outlook, the German Council of Economic Experts now expect GDP to only rise by 3.1% in 2021, down from 3.7% previously forecast.

It forecasts that Germany’s economy will shrink by around 2 % in the first quarter of this year, due to “the renewed rise in infection rates in autumn 2020 and the restrictions that currently remain in place”.

But it should then return to “a path of recovery over the coming months”, as the vaccination campaign is accelerated as planned, the pandemic is contained and, consequently, restrictions are gradually eased, the GCEE predict.

The GCEE has also cut its forecast for eurozone growth this year, to 4.1% from 4.9% previously, explaining that:

Economic activity in the euro area is being curbed by the heightened infection rates and the resultant restrictions.

The GCEE predicts that Germany’s economy will return to its pre-crisis level at the turn of the year 2021/2022, and grow by 4% in 2022.

But it also warns that vaccination progress is crucial in getting the economy back to normal, saying:

The greatest risk going forward is posed by further developments in the coronavirus pandemic. Progress on vaccinations will be one of the key factors determining how swiftly the economy can normalise.

Germany is one of several countries who suspended use of the AstraZeneca vaccine this week, while reports of thromboembolic events, such as blood clots, among a small number of people who received the jab are investigated.

GCEE member Achim Truger says Germany’s service sector could ‘bounce back’ once the pandemic is under control.

“Once we manage to get the level of infections under control and vaccinate larger sections of the population, the services sector that has been hit hard by the contact restrictions and closures – such as hospitality and stationary retail – is likely to bounce back. This should help to boost growth,”.

Fellow council member Volker Wieland flags up the risk of a third wave of Covid-19 forcing new restrictions and factory closures.

“The greatest risk to the German economy is posed by a potential third wave of infections, especially if it were to lead to restrictions or even plant closures in industry,”.

The lawyers who brought the landmark court case against Uber say they will be examining its proposal on minimum wage, holiday pay and pensions closely.

Paul Jennings, partner at Bates Wells, says the move is ‘very positive’, but fears Uber could be ‘cherry-picking’ parts of the Supreme Court ruling (as co-claimant James Farrar told us earlier).

“This is a stark change of tack by Uber, who in the immediate wake of the Judgment stated that the ruling only applied 25 drivers.

It is obviously very positive that Uber will now honour basic social protections such as the national minimum wage and access to pensions; but important questions remain as to how Uber is proposing to calculate working time.

The concern is that Uber is looking to cherry-pick aspects of the Supreme Court Judgment. As the lawyers for the lead claimants, we will be poring over the detail of the proposal.

Clearly Uber is not alone in seeking to present its workforce as self-employed. Uber is however both a bellwether and a catalyst. Its experience in the Supreme Court and decision to change the classification of its entire UK workforce will set a trend. This is unquestionably the start of something positive.”

Rachel Mathieson, senior associate at Bates Wells, suggests Uber may have to make further changes to comply with the Supreme Court:

We do however note that Uber’s new announcement does not fully adhere to the Supreme Court judgment in terms of what constitutes working time.

The Supreme Court was clear that drivers’ working time begins when the app is on in the territory not just when they have a passenger in the car - it may well be that Uber consequently has to further change its business model to reconcile this conflict.

The union which took Uber to court over its treatment of drivers is pledging to press on with its legal fight, arguing that the ride-hire firm is still ‘short-changing them’.

Last night Uber announced it would pay its UK drivers a minimum hourly wage, holiday pay and pensions - seen as a landmark moment in the gig economy world.

But that pledge will only apply when drivers are actually transporting a passenger, rather than when they’re logged into the Uber app waiting for a fare.

That, the App Drivers and Couriers Union tells my colleague Joanna Partridge, isn’t enough.

Former Uber driver James Farrar, one of the lead claimants who brought the original employment case against the ride-hailing firm, has promised “more litigation” against the company.

After last month’s landmark supreme court ruling, Uber accepted the drivers would be classed as workers in line with the ruling and said it would guarantee its 70,000 UK drivers a minimum hourly wage, holiday pay and pensions from today. But Farrar, who heads the App Drivers and Couriers Union along with fellow former driver Yaseen Aslam, said the announcement didn’t change anything.

“Uber is looking to short-change drivers, to not pay them for 40%-50% of their true working time, and I don’t know of any other situation where workers would accept that, I am not sure why Uber drivers should be expected to accept that either,” Farrar said.

“It doesn’t change anything for us.”

Farrar explains the problem:

“The parallel I would use is think of somebody working for Starbucks, we don’t say to a barista we will only pay you now for when you are making the coffees, and any other time you are there, and you will be required to be there, we won’t pay you.

We don’t say to people working for Marks & Spencer we will pay you less on a Monday as it’s less busy and pay you more on a Saturday as there are more customers,”

Calling on the government to enforce the law, he said “as long as Uber continues to operate outside the law, we will continue with our litigation”.

Farrar said:

“Uber has come here now with something that is a day late and dollar short, we would never accept that. As a trade union we can’t accept something that’s below legal minimums,”

Sarah O’Conner of the FT has tweeted this point too:

Back in the markets, the yield on benchmark US government debt has hit a new 13-month high, as investors brace for the Federal Reserve decision (6pm UK time).

The 10-year US Treasury yield has risen above 1.64%, up from 1.62% last night, which is its highest level since February 2020.

Yields rise when prices fall. This indicates some nervousness about the possibility that higher inflation and faster growth could force the Fed to tighten policy sooner than previously planned.

The Federal Reserve certainly isn’t expected to do anything dramatic like raise interest rates today. But with the economic outlook improving, some policymakers could pull forward their forecast for the first rate rise - perhaps making a mid-2023 hike more likely.

David Arnaud, Senior Fund Manager, Fixed Income, Canada Life Asset Management, explains:

“Chair Powell will need to strike a balance between the improved economic outlook and the Fed’s commitment to keep rates on hold until “substantial further progress” has been achieved. What is at stake is two-fold: maintaining favourable financing conditions by capping the recent rise in real interest rates, while preserving the Fed’s credibility and commitment to its new Average Inflation Targeting mandate.

“We expect Powell to acknowledge that the passage of President Biden’s $1.9tn Covid-19 relief package, combined with substantial progress on the vaccination rollout, warrant an upward revision to growth and inflation forecasts. However, the Fed will also reiterate that there remains considerable slack in the US economy and more importantly in the labour market (an estimated 10m jobs have been lost in the pandemic so far).

Overall, we expect a cautious message from Chair Powell while rate forecasts (the median dots) might start indicating one rate hike in 2023 (a slight increase from the zero hikes through 2023 message from the December meeting). This should be well absorbed by investors, with current futures already indicating three hikes by the end of 2023.”

The IEA has also pushed back against concerns that oil prices could surge this year.

In its latest monthly report, the energy agency argues that the sector is still awash with oil, with production curtailed, so a pick-up in economic demand shouldn’t cause prices to spike [reminder, oil hit a 14-month high last week].

Reuters has the details:

“Oil’s sharp rally to near $70 a barrel has spurred talk of a new supercycle and a looming supply shortfall. Our data and analysis suggest otherwise,” the IEA said in its monthly report.

“For a start, oil inventories still look ample compared with historical levels despite a steady decline ... On top of the stock cushion, a hefty amount of spare production capacity has built up as a result of OPEC+ supply curbs,” it said.

The Organization of the Petroleum Exporting Countries and its allies, a group dubbed OPEC+, largely kept limits on production this month, galvanising the market and causing some investors to predict a supercycle - a large, multi-year price rise.

“The prospect of stronger demand and continued OPEC+ production restraint point to a sharp decline in inventories during the second half of the year,” the Paris-based energy watchdog said.

“For now, however, there is more than enough oil in tanks and under the ground to keep global oil markets adequately supplied.”

The world’s oil demand could exceed pre-Covid 19 levels within the next two years unless concrete government action and legislation leads to a much stronger move towards clean energy, according to the International Energy Agency.

Figures from the global energy watchdog threaten to dash hopes that the world’s consumption of oil may have peaked in 2019, before the coronavirus pandemic caused oil demand to plummet by 9m barrels a day.

The IEA’s influential report found that a rebound in oil demand, particularly in developing economies across Asia, could lead the world’s appetite for crude to break above 100m barrels of oil a day for the first time by 2023.

It comes after a warning from the IEA last summer that the world’s daily oil demand may climb at its fastest rate in the history of the market in 2021 unless green policies are adopted to dampen a record-breaking oil demand rebound.

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

The financial markets are in an edgy mood, as they wait to hear from the US central bank tonight.

With the US economy improving, and president Joe Biden’s massive stimulus package approved, the Federal Reserve faces a juggling act -- trying to calm fears of interest rate rises as inflation picks up.

So analysts and investors are bracing for the Fed’s latest economic projections, and the “dot plot” which shows when its policymakers think US interest rates might rise.

With Covid-19 vaccinations well underway, and $1.9trn of stimulus approved, some Fed policymakers are likely to upgrade their growth forecasts. That’s good news for the US, and the global economy.

But.....could also easily conclude that the first interest rate hike will come earlier than before - something that could jolt the markets.

Fed chair Jerome Powell has been keen to calm concerns about an early rate hike, following some worrying wobbles in the bond markets in recent weeks.

But Powell runs the risk of not sounding dovish enough -- given the signs of improvement in the US economy. That could potentially disappoint investors, and see government bond yields (borrowing costs) push higher.

Mohit Kumar of Jefferies explains:

Given the uncertainty over the Fed meeting we would recommend reducing risk going into the meeting. Our base case is that Powell would not push back against the recent rise in rates and the dot plots would validate market’s thinking that the Fed is behind the curve.

It could be a modest disappointment for investors seeking a more dovish intervention from the Fed.

European markets are thus in a sombre mood, with the FTSE 100 index dipping 21 points (0.3%) in early trading.

Richard Hunter, Head of Markets at interactive investor, says investors are “treading water” ahead of a delicately poised Federal Reserve announcement.

The Fed is expected to raise its forecasts for economic growth but at the same time retain its accommodative stance. Its previous assertion that the current inflation effect is transitory will need to be reiterated in order to avoid further uncertainty in the bond markets while for equities, any hint of a rise in interest rates earlier than expected would be unsettling.

While the current consensus is that rate rises are unlikely before 2023, the recent rise in inflation expectations will need to be addressed in view of more recent economic data suggesting that an economic recovery is already under way.

The agenda

• 9am GMT: IEA oil market report
• 10am GMT: Final reading of eurozone inflation for February
• 12.30pm GMT: US building permits and housing starts for February
• 2.30pm GMT: US weekly oil stocks
• 6pm GMT: US Federal Reserve interest rate decision
• 6.30pm GMT: Fed chair Jerome Powell’s press conference