Brexit forces US Fed to put rate hike on hold

Brexit forces US Fed to put rate hike on holdUnited States Federal Reserve policy makers have decided to put interest rate hikes on hold until the fallout of Britain’s vote on the European Union becomes clear.

Minutes of the US Fed meeting, held the week before the referendum and released yesterday, indicated voting members of the rate setting Federal Open Market Committee were uneasy about the Brexit vote.

“Members generally agreed that, before assessing whether another step in removing monetary accommodation was warranted, it was prudent to wait for additional data on the consequences of the U.K. vote,” the minutes said.

While views might change even further with the release of US jobs figures at the end of this week, the central bankers were also expressing concern about Brexit, China’s high debt levels and currency policy, saying they “represented appreciable risks to global financial stability and economic performance.”

The minutes show there was a lot of debate about low inflation in the United States.

While “most” saw “continued progress” towards a workable inflation number, others were “less confident” citing “persistent disinflationary pressures,” ranging from weak growth abroad to low inflation expectations.

There was also disagreement about the paltry 38,000 created in May. Some Fed officials attributed that to a telecommunications strike and statistical noise. Others felt it could “be indicative of a broader slowdown in growth of economic activity.”

“It will probably take some time for the Fed to get a full accounting on the outlook for growth, which will mean that any move on rates will be another three to four months away at least,” Millan Mulraine, deputy head of US research and strategy at TD Securities (USA) LLC in New York told Bloomberg.

In the meantime, the market has priced in only a 12 per cent probability that the Fed will raise rates before the end of the year.

 



An award winning author and journalist, commentator, lecturer, and speaker, Leon is a freelance business journalist who covers a range of areas including politics, strategy, globalization, leadership and all the big trends ahead. His main skill is summing up all the news that’s around. For the last 30 years, his main focus has been on management issues. He also produces two podcasts for RMIT University, Talking Business and Talking Technology. Leon has worked for Fairfax, News Limited, AAP and the Herald and Weekly Times.


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