Fed may be forced to delay rate hike in June over Brexit vote
The U.S. Federal Reserve may be forced to delay an interest rate hike at its policy-making meeting in June due to mounting concern over the economic fallout from Britain’s vote on whether to leave the European Union.
The geopolitical risk relating to the vote will likely delay any U.S. rate increase until at least July, despite apparent consensus among Fed officials that a hike is warranted by stronger U.S. growth and tight labor markets.
The Fed’s June 14-15 rate-setting meeting will come just a week before the British vote on June 23. A “leave” vote, dubbed widely as “Brexit,” is expected to roil financial markets, cause credit spreads to widen, trigger a rush into safe assets and bolster the dollar.
The dollar’s recent stability is one reason the Fed has become more comfortable with raising rates, and officials may want to let the threat of Brexit pass before moving to tighten financial conditions.
Fed Board Governor Daniel Tarullo on Thursday joined the chorus of those warning of his concerns over the British vote, telling Bloomberg that Brexit would be a “factor” he would consider at the Fed’s June policy meeting and said that the British vote’s impact on markets would be key.
The most recent poll found that voters in Britain – Europe’s second biggest economy and its most influential financial center – were evenly split on whether to stay in the EU or to leave.
By the time the Fed meets on June 14 and 15, at least four of the five Washington-based governors will have aired their views on the outlook for rates, with Lael Brainard due to speak Friday and Chair Janet Yellen appearing in Philadelphia next week.
WARY OF BREXIT
Fed officials will release their latest economic projections at the June meeting along with a policy statement, and Yellen is scheduled to hold a post-meeting news conference.
The two governors who have addressed the Brexit vote so far have sounded notes of caution.
“I do see the possibility of a real hit to economic growth both in the U.K and the EU,” Fed Board Governor Jerome Powell said last week. “I can imagine the upcoming Brexit vote as presenting a factor in favor of caution about raising rates.”
