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Published: Sat, July 16, 2016
Economy | By Melissa Porter

Fed's Lockhart - Brexit, uncertainty, require patience on rates


St. Louis Fed President James Bullard: "In the aftermath of Brexit, people want to wait and see and I' happy to go with that for now".

Brexit was a dark cloud on the horizon for the Federal Reserve.

Federal Reserve policymakers appear to be in no hurry to raise USA interest rates despite signs that the us economy is near full employment, with two more top Fed officials expressing that view on Thursday.

The PIMCO economists argue by failing to follow through with its threats to raise rates, the U.S. central bank has left "many market observers believing the Fed has become myopically focused on the vagaries of the stock market, nearly to the point where it ignores most other indicators of economic health".

In May, Hhrker forcast at least three rate hikes this year.

"They're buying the option to raise rates this year if the data unfold the way they anticipate", said Joe LaVorgna, chief USA economist at Deutsche Bank.

Fed Chair Janet Yellen has not publicly weighed in on the debate and has no appearances scheduled between now and the July 26-27 meeting of the Federal Open Market Committee, which will not be followed by a press conference.

Analysts see no probability of a Fed rate hike at the meeting in 11 days. "Two seems hard, one is feasible", LaVorgna said.

Harker, who has been at the Fed for a year, downplayed any effects of Brexit, saying first-quarter U.S. economic weakness was largely due to seasonal adjustments.

Britain's vote on June 23 to exit the European Union sent investors scrambling for safe assets and cast a pall over the world economic growth outlook.

"For the most part, economic fundamentals appear to be solid, personal income growth has been healthy, job growth continues - albeit with some volatility - at a healthy pace, and there has been a modest increase in equity prices and continued steady growth in home prices", Harker said in a speech in Philadelphia yesterday.

Overall he was confident that the Federal Reserve was not behind and comfortable with the cautious and patient approach to policy in the near term.

Currently, investors believe there is a 5 percent chance of a rate increase happening in late July.

Since the Fed began publishing interest rate outlooks in 2012, the path and endpoint of policy has steadily shifted lower. However, when global markets are unpredictable, the Fed is left with no choice but to be unpredictable.

"That is the first shot of calm waters", given the potential Brexit spillovers, the coming USA presidential election and elections in France that could impact the eurozone, Oubina said.

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