According to Reuters, expectations of the Federal Reserve's interest rate hike in June may be dashed due to concerns about the negative impact of the Brexit referendum.
The minutes of the Federal Reserve's April meeting and official speeches previously released said that as long as the US economic growth becomes stronger and the employment market is tight, there is a reason to raise interest rates. However, the Fed cannot ignore the risks posed by external factors, which is likely to make decision makers cautious and choose to postpone interest rate hikes.
Brexit referendum will be held on June 23, and the Federal Reserve meeting will be held on June 14-15 the previous week. If the referendum result is to exit the EU, it will shock the financial market, trigger an expansion of credit spreads, prompting funds to flow into safe-haven assets, and thus pushing up the US dollar.
The recent stable trend of the US dollar is one of the reasons why the Fed is more confident about raising interest rates. Fed policymakers may want to wait until the threat of the Brexit referendum has passed before raising interest rates.
Before the Fed's June meeting, at least four of the five Washington directors would publicly express their views on the interest rate outlook. For example, director Lael Brainard will give a speech on Friday, while Chairman Yellen is the next Week will speak in Philadelphia.
Federal officials will also release the latest economic forecasts in addition to publishing policy statements at their June meeting, while Yellen will hold a post-meeting press conference.
Federal Director Powell said last week, "I really think it is possible to cause a substantial blow to the economic growth of the UK and the EU. I can imagine that the upcoming Brexit referendum has become a factor in supporting a cautious view of interest rate hikes."
Previous Jon Faust, a Fed employee and now a professor of economics at Hopkins University, said it was "obvious" to watch the Brexit referendum. "Why do we need to act now, rather than weeks from now?"
With a few exceptions, the signal sent by the regional Fed president is still consistent, that is, the upcoming Brexit referendum may hinder the Fed's interest rate hike in June a factor.
And this is just the latest obstacle to the Fed's efforts to normalize monetary policy over two years.
In 2014, the collapse of oil prices and the surge in the US dollar exchange rate hit U.S. exports and greatly pushed down inflation.
Last year, China's unexpected economic slowdown and difficulties in Europe and Japan triggered global market turmoil, as well as widespread concerns about a global recession. This troubling situation caused the Fed to wait until December to start hikes.
Now, if Brexit is not considered, the prospect of the Fed's quick rate hike is almost certain. U.S. unemployment has dropped to 5% in April; inflation seems to be gaining momentum as low oil prices and strengthening dollar wanes; growth has stalled over the past few months as consumer spending and housing markets appear particularly strong It was proved to be temporary.
Federal funds futures trading data compiled by CME Group shows that the probability of a rate hike in June is currently about 17%, while the probability of a rate hike in July is 57%.
Although there is still uncertainty about the impact of the UK vote for leaving the EU, a generally expected and direct result may be: the dollar exchange rate soars, which will further hit U.S. exporters and the Fed still believes that inflation is too low. Another drag.
Feders have already suggested that if the Fed's June meeting really remains unmoved, they will be ready to take action in July. The next action time after July will be September, when the US election period is in the US, and the Federal Reserve and Yellen are likely to become the focus of debate in the election.
But if the June meeting does not raise interest rates for the time being, Yellen will have to try to explain why officials strive to make the public believe that the Fed's decision "depends on the data", but on the other hand, it has pushed the consideration of global factors again. Domestic economic data.
Analysts said one thing Yellen could do is to suggest that Fed officials unanimously agree to slow rate hikes in the coming years, but stressed that there is no urgent need to start hikes immediately due to low inflation, especially as the UK is about to face Referendum, a one-time global event that may have a major impact.
RBC analysts Michelle Girard and Kevin Cummins said, "Even if the UK exits the EU is unlikely to be seen as a big possibility, we think the extremely cautious Fed president may feel that waiting for seven more weeks to act is very small."
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