Grexit Will not Deter Fed from Hike Path

The fuse may be lit for a Greek exit from the euro zone but the fallout in the United States is expected to be modest and not enough to throw the Federal Reserve’s likely September rate hike off course, said former Fed officials and outside analysts watching the latest turn in Greece’s crisis.

Major U.S. stock indexes closed down about two percent on Monday following sharp declines in Europe and Asia, while yields on Treasury bonds fell as investors piled into U.S. debt, as is typical in times of overseas stress. But the gyrations in the markets were not dramatic enough to waylay the Fed, analysts said.

“They don’t have to raise rates tomorrow morning,” said Roberto Perli, a former Fed staffer and now head of global monetary policy research at consulting firm Cornerstone Macro. “We will see how the economy does, and if it does not look like this is going to be a big deal then it is squarely up to U.S. data.”

Michael Cloherty, head of U.S. rates strategy at Royal Bank of Canada’s RBC Capital Markets unit in New York, said events in Greece did not significantly change the outlook for the Fed.

“This isn’t a ‘watch Greece’ situation…While we have chaos in Greece, there are no signs of dramatic contagion yet, and that’s why it doesn’t change the Fed’s tone,” he said.

Talks between Athens and its creditors broke down over the weekend after Prime Minister Alexis Tsipras called a surprise referendum on the austerity cuts in an aid package proposed by Greece’s creditors.

The crisis in Greece has been such a long-running saga that the financial system has had time to buffer itself against the worst.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza