Yellen: the referendum is dangerous – Il Sole 24 Ore

New York

Janet Yellen and his Federal Reserve have pulled the brake on the rise in US interest rates, worried by the specter of Brexit, denounced by the sudden fragility from the US labor market and the heightened tensions on the markets. The Fed yesterday left unchanged not only the cost of money, but has reduced the expected path of tight monetary policy.

“Brexit – said Yellen – he was one of the factors in our decision. It might have consequences on future economic and financial conditions and will remain a factor in the coming decisions. ” Fed Chairman had recently warned publicly that the outcome of the referendum of June 23 in Britain on the output from the EU is “dangerous”.

The statement from the Fed and the press conference of the President they have left little doubt that, in front of the domestic and external uncertainties, the central bank has now chosen to marry with renewed urgency cautious attitudes and accommodative policies: a possible rate hike at the end of July summit – only given to 16% from the squares “future” – will require explicit expansion strength tests and stability in the global economic and financial developments.

Yellen herself explained that “need assurances that the thrust of the economy has not diminished”, first after the occupation, even in health, “has lost momentum.” It pointed out that close could arrive before the US presidential election.

The Fed, in general, has made known “to expect that conditions evolve in such a way as to require only gradual increases in the federal funds rate ». The economic activity growth looks set to accelerate than the disappointing 0.8% in the first quarter, but the central bank still has revised down its previous expectations of GDP for 2016, to 2% from 2.2 percent . Inflation is expected to show modest improvement to 1.4% instead of 1.2 percent.

The average expectations of Fed policymakers, in this context, interbank rates are 0.875% by the end of the year, a level which in theory implies two hikes. But it is significant as the six members of the Federal Open Market Committee on 17 consider that the central bank will intervene in reality only once by December, compared to a single governor who believed the March summit d. Only two also predict at least three narrow in 2016, compared with seven in the previous meeting. And the curve of increases in the coming years has become less pronounced: at the end of 2018, the forecast is that rates are at 2.375% instead of 3% expected so far and they stop following the 3% maximum and not of 3.25 percent.

the stock exchanges and bond market, American and international, have shown recently tremors which called prudence: the Vix volatility index and fear, has shot up by a third, at an altitude of 20, in a handful of sessions. And the stock folded and swung nervously – yesterday’s Wall Street remained basically flat – while the American sovereign bonds and German attract investors hunt for security.

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