The U.S. Federal Reserve, already undecided on when next to raise interest rates, now has one more reason to wait: Britain’s vote on Thursday to leave the European Union.
Not that the Fed needed another reason.
Weaker-than-expected growth in U.S. jobs in recent months had already forced U.S. central bankers to put off a rate hike at their meeting last week.
But while data due early next month on June U.S. payrolls growth could help clear up doubts about the strength of the labor market, the political and economic consequences of Britain’s exit from the EU will take months or years to unfold.
Financial markets have already spoken, emphatically, in the hours since the ‘leave’ outcome in the so-called Brexit referendum became evident. U.S. equity index futures plunged and investors rushed for the safety of U.S. Treasurys, pushing the yield on the benchmark 10-year note below 1.5 percent, nearly a four-year low. The dollar rose by more than 3 percent at one stage, the most in a day since 1978.
Interest rate futures markets rallied so hard that they have erased any probability of an increase in the Fed’s benchmark overnight lending rate for both this year and next. In fact, they are pricing a possibility that the federal funds target rate may be lower in December than it is now, which is around 0.38 percent on average.