Fed policymakers to hold rate hikes until fog of Brexit clears
Federal Reserve policymakers decided in June that interest rate hikes should stay on hold until they have a handle on the consequences of Britain’s vote on EU membership, according to the minutes of the Fed’s June policy meeting released on Wednesday.
The minutes of the June 14-15 meeting, which took place ahead of the June 23 referendum in which Britons voted to leave the European Union, showed widespread unease over the so-called “Brexit” vote, including among voting members on the rate-setting Federal Open Market Committee.
“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,” according to the minutes.
Worries have only intensified since the vote and Fed Governor Daniel Tarullo cited the rise in uncertainty on Wednesday when he argued for holding off on rate hikes until inflation had turned decisively higher.
At the June policy meeting, policymakers also cited a severe slowdown in hiring by U.S. employers as a reason for leaving interest rates steady last month, the minutes showed.
The Brexit vote shocked investors and triggered $2 trillion in losses in global stock markets the day after the referendum.
Anxieties remain, with global financial conditions tightening as investors anticipate it could take years before Britain and the EU agree to new rules on finance, trade and immigration.
On Wednesday, U.S. benchmark and long-dated Treasury yields hit record lows, with some investors betting the Fed would keep rates on hold through 2017.
“We would need to see a few months of good data … to support a hike,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
The dollar, which has gained more than two percent against a basket of currencies since the Brexit vote and could weigh on U.S. exporters, weakened slightly following publication of the minutes.