Federal Reserve Chair Janet Yellen said Brexit concerns were a factor in the central bank’s latest monetary policy decision. In her press conference, Janet Yellen said the Federal Open Market Committee was unanimous in deciding to keep the current rates.
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Traders put the odds of a US rate increase in July at about 10%, down from 53% at the start of this month, Fed funds futures show.
“The pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up”, the FOMC said in a statement after its gathering. A survey of the 17 officials found that six think there will be only one rate hike this year, up from just one official who thought so at the Fed’s March meeting.
Though the undertone of the Fed meet was dovish market has got a feeling that there is a higher slowdown to the economy. “We should not over-blow the significance of one data point, especially when other indicators of the labor market are still flashing green”, she told reporters.
The central bank also lowered its economic growth forecast for this year and the next to 2 percent from 2.1 percent.
Despite those downgrades, a majority of Fed officials signaled they anticipated making two small, 0.25 percent rate increases this year.
“Investors in the USA are scrutinising central bank policy and asking whether, over the longer term, it may be exhausting its ability to spur economic growth and inflation”, he said. “It is not impossible that by July, for example, we would see data that led us to believe that we are in a perfectly fine course”. It has clearly mentioned that after this year, it will be less aggressive in increasing rates.
The Fed has been consistently wrong on its economy and interest rate forecasts for numerous years now.
The Fed, which entered the year planning to raise rates four times, has scaled back those plans as economic growth has failed to live up to expectations.
Not long ago, a Fed rate increase at the June meeting seemed very possible.
Primary dealer economists said chances of a USA recession remain relatively low. Economists fear a “leave” vote could unleash turmoil on global financial markets.
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A so-call Brexit “could have consequences for economic and financial conditions in global financial markets”. It will tick down to 4.6 per cent next year, the Fed projects, and remain at that level in 2018. The government’s May jobs report showed that employers added just 38,000 – the weakest monthly gain in five years – and that job growth has averaged only 116,000 the past three months, down from an average of 230,000 in the 12 months ending in April. The immediate market reaction to the FOMC statement was an expected drop in the USA dollar, a surge in gold, and a further boost for United States stocks.
