Fed’s Williams signals rate hike in 2016, dismisses further Brexit risk

The Federal Reserve Bank of San Francisco President John Williams, during a telephonic interview, signaled a rate hike this year, dismissing any further risks that might emanate from Britain’s likely exit from the European Union. Also, the rate hike would follow in this year if his growth and inflation expectations turn into reality.

Williams’ comments play a significant role in shaping the sentiments across financial markets, since he is a voting member of the US Federal Reserve, although he is permitted to vote on policy again in 2018. He further said that unemployment is expected to decline to 4.5 percent in 2016 and inflation is likely to continue on the upward trajectory. If this turns out well, a rate hike this year is most probable, he added, declining to comment on the exact date and time.

"I would see the Brexit, as it’s played out so far, as being a relatively modest risk to the U.S. outlook,” said Williams, in a telephonic interview to Bloomberg on Tuesday.

The comments from the Fed President comes in almost two weeks after the United Kingdom referendum on its exit from the European Union shocked markets and the political fallout that followed in some countries.

However, Williams shrugged off the weak May employment report, stating that an uneventful weather is most likely to have flawed the employment data, extending the slump in recent months. However, he said that employment has weakened in relation to past data that showed a strong jobs growth in 2014 and 2015, but he waned off any worries surrounding that.

"If the data come in strong, or come in consistent with my outlook, that would argue to step away somewhat from that more cautious approach," Williams added in his statement.

Finally, Williams said that though the Brexit effect will wave off in the coming months, the shocking decision by the Britons to leave the EU may lower economic growth for the year by about a tenth of a percentage point to just under two percent.