The U.S. Fed Saw the Negative Consequences of the Brexit Coming
The U.S. Central Bank was one of the few that saw a possible Brexit coming.
Britain’s decision to leave the European Union caught investors and policymakers around the world off guard. But count the U.S. Federal Reserve among the few who saw the possibility of a British exit coming.
In meetings minutes from the Fed’s June meeting, policymakers decided that interest rate hikes should not go up until they better understood the consequences of Britain’s vote on EU membership. Fed decision makers expressed widespread unease over the vote, which sent world markets reeling after Britons decided to leave Europe.
“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.
The impact of the Brexit can already be felt around the world. The U.S. dollar is up, making it more expensive for foreigners to buy American goods. Almost three quarters of economists surveyed by Bloomberg expect the UK to fall into recessions in the wake of the vote.
Prior to the vote, the Fed planned two interest rate hikes to keep the U.S. economy on the right path. Since the Brexit, however, several Fed officials have hinted the central bank would be cautious about raising the cost of borrowing, something that makes it more expensive for businesses and private consumers to get loans. Right now, the Fed charges between 0.25 and 0.50 interest rate on federal funds, a paltry price to borrow.
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