Fed minutes suggest unease over Brexit halted rate hikes

WASHINGTON • United States Federal Reserve policymakers decided last month that interest rate hikes should stay on hold until they have a handle on the consequences of Britain's vote on European Union membership, according to the minutes of the June policy meeting that were released late on Wednesday.

The minutes of the June 14-15 meeting, which took place ahead of the June 23 referendum, showed widespread unease over the result, including among voting members of the rate-setting Federal Open Market Committee.

"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 vote", according to the minutes.

Policymakers also cited a severe slowdown in hiring by US employers as a reason for leaving interest rates steady last month, the minutes showed.

The Brexit vote has raised anxiety in financial markets, in part because Britain and the EU could take years to agree to new rules for finance, trade and immigration.

Already, global financial conditions have tightened, with a firming of the greenback poised to weigh on US exporters.

The dollar, which has gained more than two per cent against a basket of currencies since the vote, weakened slightly following publication of the Fed minutes.

Before the vote, the Fed had signalled that two rate hikes would probably be needed this year to keep the US economy from eventually overheating.

Since the vote, several Fed policymakers have said that the uncertainty warrants caution, including New York Fed president William Dudley, who said on Tuesday that the Fed needed to be patient with rate increases and that it was too soon to gauge the fallout from the vote.

A severe slowdown in hiring in May and weak business investment even outside the sagging energy sector had raised questions about the US outlook even before the vote.

Still, in the minutes of the June meeting, many Fed policymakers stressed that the sharpness of the hiring slowdown could be statistical noise, and most argued that the economy would be ready for rate increases unless a financial or economic shock knocks America off course.

"None of us really knows the magnitude, and I doubt there will be a moment when people say Brexit is done. It will be something that attenuates over time," Fed governor Daniel Tarullo said on Wednesday. "There is a good bit of uncertainty."


A version of this article appeared in the print edition of The Straits Times on July 08, 2016, with the headline 'Fed minutes suggest unease over Brexit halted rate hikes'. Print Edition | Subscribe