Tarullo Says Brexit Vote ‘Factor’ for Fed’s June Rate Decision

Fed's Tarullo on Fed Taking Brexit Into Account
  • Says he’s inclined to view that employment has room to rise
  • Fed governor declines to say which action he favors in June

Federal Reserve Governor Daniel Tarullo said the British vote on European Union membership was a “factor I would consider” at the central bank’s June meeting, though he declined to spell out if he favors raising interest rates or leaving them on hold.

“With Brexit, obviously, there’s just a lot of uncertainty,” Tarullo said in a Bloomberg Television interview Thursday, pointing to the question of whether the U.K. would vote in the June 23 referendum to remain in the EU or leave. “In the short term I think it’s more of a question of the immediate impact on markets. Obviously, if there are implications for growth over time, that’s something that would affect our ongoing monetary policy.”

Recent comments by other Fed officials, including Chair Janet Yellen, have made clear policy makers are considering an interest-rate increase in the coming months, so long as the economy continues to improve. The policy-setting Federal Open Market Committee next meets on June 14-15.

After hiking in December for the first time in almost a decade, the FOMC has delayed a second move amid concern over global growth and financial-market turbulence. At the same time, the U.S. economy has continued to expand, albeit at a slower pace in the first quarter. Officials expect a pickup in the current period.

Tarullo said there are several approaches to policy: In one, some officials had taken the view that gradual rate increases could prevent inflation from rising too quickly later on.

Higher Wages

“The second approach, which I’ve been a little bit more inclined towards, is to say, ‘Gee, you know, it’s not clear what full employment is, we’re in a global environment which is not inflationary, and we can perhaps get some more employment and some higher wages’,” he said. “Are we at a point where there’s an affirmative reason to move?”

The Fed will get more information on Friday when the government releases the monthly U.S. jobs report. Analysts surveyed by Bloomberg estimate that employers added 160,000 workers in May and the jobless rate fell to 4.9 percent from 5 percent, a level that is close to or at many estimates of full employment.

Prices in federal funds futures contracts imply about a 20 percent probability of a rate increase this month, rising to 52 percent by the FOMC’s July meeting.

Investors may get further clues from a speech Friday by Fed Governor Lael Brainard, followed by remarks from Yellen on Monday. Yellen’s speech in Philadelphia will be on the eve of the Fed’s traditional pre-FOMC blackout period, when officials refrain from commenting publicly on policy, probably leaving the chair with the final word on Fed thinking before its decision is announced on June 15.

Watch next: Jobs VS Brexit: Which is More Important To the Fed?

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