The U.S. Federal Reserve will most likely take a call on hiking interest rates after Britain’s historic vote on EU.
So as to factor in the economic fallout of Britain leaving the European Union, the U.S Federal Reserve may be forced to delay an impending hike in interest rates that was previously scheduled to take place in June.
Despite the apparent consensus among officials in the Federal Reserve that a hike in interest rates is warranted in view of stronger growth of the U.S. economy and tightening labour conditions, however, the geopolitical risks of Britain leaving the European Union are too high.
Whereas the Federal Reserve’s next meeting is scheduled to take place on June 14 and 15, the British referendum is scheduled for June 23. A “leave” vote will have major impact on financial markets worldwide. Credit spreads could widen and create a movement of rushing to invest into safer assets and thus bolster the value of the USD.
The stability of credit is one of the planks that the Fed is banking on for raising interest rates. The Fed thinks it would be more prudent to raise the rates once the threat of Brexit passes.
Daniel Tarullo, the governor of the Federal Reserve’s board has joined the chorus of warning over the British vote. Bloomberg has reported that he has said this would be a “factor” in the Fed’s June policy meeting.
Britain us Europe’s second largest economy and its most influential financial centre. As per recent polls, voters in Britain are evenly split on whether to remain within the European Union or to leave.
Hush hush meetings have taken place and have tried to quantify the impact of Britain leaving the European Union. British Prime Minister David Cameron has termed the uncertainty that would follow if Britain were to leave the EU as a “leap in the dark”.
If Britain were to remain within the EU, it could potentially aggravate the infighting among the ruling Conservative party and destabilise similar events among the other EU states.
Brexit aside, the prospect of an increase in interest rates is all but certain. Inflation seems to be gaining traction, unemployment rates had dropped to 5% in April, and the dreams of cheap oil and a strong dollar are slowly receding. Furthermore, the lull in economic growth, in the past few months, have been shaken off with consumer spending and the housing market surging ahead strongly.
Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy
manageria.biz 
Leave a comment