Date
24 January 2017
US Federal Reserve Chair Janet Yellen addresses a news conference in Washington Wednesday following a two-day policy meeting. Photo: Reuters
US Federal Reserve Chair Janet Yellen addresses a news conference in Washington Wednesday following a two-day policy meeting. Photo: Reuters

Fed holds rates steady, cites Brexit fears

The US Federal Reserve kept interest rates unchanged on Wednesday following a two-day meeting, with chairperson Janet Yellen admitting that concerns related to a possible “Brexit” had weighed on policymakers’ minds. 

As Britain prepares for a referendum on the nation’s continuance in the European Union, the vote will have “consequences for economic and financial conditions in global financial markets”, Yellen said in a news conference following the policy meeting.

If Britons back an exit from the EU, the decision “could have consequences in turn for the US economic outlook,” she said.

Despite the Brexit caution, the Fed however signaled that it still plans to raise rates twice this year.

But slower economic growth might crimp the pace of monetary policy tightening in future years.

The central bank’s decision to stick with its 2016 rate path, however, appeared shakier, with six of its 17 policymakers projecting just one increase this year, Reuters reported.

A sharp slowdown in US hiring in May had fueled doubts about the strength of the labor market going into the Fed’s policy meeting.

Yellen acknowledged the need to see clear signs of economic strength before lifting rates.

“We do need to make sure that there’s sufficient momentum,” she said at the news conference.

The Fed said that it expects the US economy to grow only 2 percent this year and in 2017, 0.1 percentage point lower than previously forecast for each year.

It also cut its longer-term view of the appropriate federal funds rate, its benchmark lending rate, by a quarter point to 3 percent.

Yellen was not clear on whether a rate increase could come at the next policy meeting in late July or whether the Fed will wait for a slew of firmer data as it headed into its September meeting.

“I’m not comfortable to say it’s in the next meeting or two, but it could be,” the central bank chief said.

“It’s not impossible that by July, for example, we would see data that led us to believe that we are in a perfectly fine course.”

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CG/RC

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