US economy likely to slow, Fed seen keeping rates on hold in 2016 following Brexit

US Fed Chair Janet Yellen had mentioned during the June FOMC meeting that the UK exiting from EU might have consequences for the outlook of the U.S. economy and financial market developments. Earlier, the U.S. economy had been adversely impacted by the European debt crisis in 2011-2013 that decelerated the economy noticeably. The US Fed had then implemented QE 3 to underpin the economy.

The Fed will be keeping a close watch on the incoming data in order to assess the effect of Brexit on the U.S. economy. The U.S. economy is expected to decelerate; however it will avoid a recession, said Danske Bank in a research report. Moreover, the Fed is now likely to keep the rates unchanged at least for the remainder of this year. If required, the Fed is expected to lower rates back to 0.00 percent-0.25 percent and begin a new QE round, according to Danske Bank.

The US Fed does not appear to prefer bringing rates to negative territory. At present, the markets are projecting a full rate hike by the Fed by the fourth quarter of 2017.