U.K. voters may hamper the Federal Reserve’s ability to raise interest rates this summer, according to Bloomberg Intelligence.
A decision by the British electorate to withdraw from the European Union in a June 23 referendum could delay the next tightening move from U.S. policy makers by about three months, according to an economic model designed by analysts Jamie Murray, Carl Riccadonna and Dan Hanson.
That’s because so-called Brexit would hurt the U.K. economy, imposing a drag on U.S. exports and gross domestic product as well as triggering possible reverberations in financial markets, the analysts said in a report released on Wednesday.
“Should Britain vote to leave the EU on June 23, the implications for the U.S. economic outlook would be modest, but could prevent the Fed from hiking in July,” Murray, Riccadonna and Hanson wrote. With the U.S. presidential election “dominating the agenda for the remainder of the year, that could put two hikes in 2016 beyond the Fed’s reach.”
Investors see roughly a 12 percent chance of an interest-rate increase from the Fed when its officials convene in June and a 28 percent probability that the benchmark will be higher by the July meeting. Bloomberg Intelligence is forecasting a hike at the July gathering, but sees later in the year as more likely in a Brexit scenario.
Even so, two regional Fed Bank presidents said on Tuesday that two rate moves may still be warranted in 2016, as the economy continues to expand and inflation picks up. While one of those, Dallas Fed President Robert Kaplan, said action at “upcoming meetings” will be appropriate, he also said the Brexit vote would be a factor in June’s Federal Open Market Committee decision.
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