In a statement at the start of the week, US Federal Reserve chair Janet Yellen said that a UK vote to leave the European Union had implications for the interest rates in the US.
Janet Yellen Warns Brexit to Hit US Economy
She said “so far the positive economic forces have outperformed the negative” an indication that the Fed will likely raise interest rates this summer when it meets on June 14-15.
Ms. Yellen added, “If the latest data is consistent with the conditions in the labor market showing stronger performance and inflation heading to 2% as per our objective, further but gradual increases in the interest rate will likely be implemented.”
For the first time in nine years, the Fed increased interest rates by 0.25% last December and the rates have remained the same ever since. Rates had been largely expected to hike over the summer but poor performance in the labor market in May lowered these expectations.
Last month, just 38,000 jobs were added to the market, the lowest figure since 2010.
According to Ms. Yellen, these figures were disappointing but an overall positive economic performance outweighed the labor market performance.
She said, “There are good reasons to expect that positive economic forces that support high inflation and employment will outweigh the negative forces.”
In case the Fed does not increase rates this June, it will likely do so in July following the Brexit referendum to be held on June 23. This will give the Fed adequate time to determine the impact of the vote on the global economy.
Some economists have pointed out that the UK’s exit from the EU could have adverse effects on the US economy, a sentiment that Ms. Yellen has echoed.
She asserted that a Brexit could dampen investors’ appetite for risk.
Leal Brainard, a member of the Federal Bureau’s board of governors also pointed out that a Brexit could trigger adverse reactions from the US market.
“Given the tight interlinking of the global financial markets, adverse reaction in Europe to Brexit could have ripple effects in the US, including actual market activity in the US market.