The Cable

The Cable goes inside the foreign policy machine, from Foggy Bottom to Turtle Bay, the White House to Embassy Row.

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.

Andrew Burton/Getty Images
Andrew Burton/Getty Images
Andrew Burton/Getty Images

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.

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.

Photo credit: ANDREW BURTON/Getty Images

More from Foreign Policy

An illustration shows George Kennan, the father of Cold War containment strategy.
An illustration shows George Kennan, the father of Cold War containment strategy.

Is Cold War Inevitable?

A new biography of George Kennan, the father of containment, raises questions about whether the old Cold War—and the emerging one with China—could have been avoided.

U.S. President Joe Biden speaks on the DISCLOSE Act.
U.S. President Joe Biden speaks on the DISCLOSE Act.

So You Want to Buy an Ambassadorship

The United States is the only Western government that routinely rewards mega-donors with top diplomatic posts.

Chinese President Xi jinping  toasts the guests during a banquet marking the 70th anniversary of the founding of the People's Republic of China on September 30, 2019 in Beijing, China.
Chinese President Xi jinping toasts the guests during a banquet marking the 70th anniversary of the founding of the People's Republic of China on September 30, 2019 in Beijing, China.

Can China Pull Off Its Charm Offensive?

Why Beijing’s foreign-policy reset will—or won’t—work out.

Turkish Defense Minister Hulusi Akar chairs a meeting in Ankara, Turkey on Nov. 21, 2022.
Turkish Defense Minister Hulusi Akar chairs a meeting in Ankara, Turkey on Nov. 21, 2022.

Turkey’s Problem Isn’t Sweden. It’s the United States.

Erdogan has focused on Stockholm’s stance toward Kurdish exile groups, but Ankara’s real demand is the end of U.S. support for Kurds in Syria.