Federal Reserve member Powell warns on Brexit effect

Jerome Powell, a member of the Federal Reserve’s Board of Governors has warned of the potential knock-on effects of the referendum in the United Kingdom, where people voted against staying in the European Union. However, he also suggested that it is too early to jump to conclusions. It is the first set of comments arriving from Fed post-referendum. After the referendum, Fed officially announced that all of its swap lines are ready to provide liquidity.

According to Mr. Powell,

• The U.S. economy was already facing risks from abroad, lower growth and low inflation and these hazards have now increased with the increased possibility of a British exit from the European Union. “These global risks have now shifted even further to the downside, with last week’s referendum on the United Kingdom’s status in the European Union,” said Mr. Powell.
• He said that the vote has introduced new uncertainties.
• The financial market is functioning in an orderly manner but conditions have tightened.
• The U.S. economy has made substantial progress towards maximum employment mandate but there are rooms for improvement and the Fed still has work to do to ensure inflation reaches 2 percent objective. He signaled wariness over recent weakness in labour market statistics.
• He also suggested America’s potential growth has slowed.

The market has ceased to price a hike from Federal Reserve this year and now pricing the next hike late last year.