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Fed set to hold rates until Brexit impacts become clear

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The US Federal Reserve is set to keep interest rates on hold until it understands the repercussions of the UK’s vote to leave the European Union, minutes from its June meeting published this week reveal.

Minutes of the Fed’s June policy meeting, which was held before the June 23 referendum, says: “Members generally agreed that before assessing whether another step in removing monetary accommodation was warranted, it was prudent to wait for additional data regarding labour market conditions as well as information that would allow them to assess the consequences of the UK Brexit vote for global financial conditions and the US economic outlook.”

Before the vote, the Fed had signalled two possible interest rate hikes before the end of the year.

The market now expects an interest rate raise will not come until 2018.

As at the April meeting, the FOMC said the central bank will only raise rates if it sees a pickup in economic growth, employment growth sufficient to reduce unemployment, and inflation likely to rise to 2 per cent over the medium term.

Despite growth picking up in the second quarter the Fed remains cautious on its outlook for US GDP growth.

“The risks to the forecast for real GDP were seen as tilted to the downside,” the minutes says.

Fed members also stressed the need for the US market to be able “withstand a possible downward shock to demand” if international economies raise concerns, especially China.

The next meeting to decide on interest rates is on 26 and 27 July.

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