Fischer Says Fed Must Wait and See Brexit Impact on U.S.

Updated on
  • Incoming U.S. economic data ‘look good,’ Fischer says on CNBC
  • Fed’s Mester says it’s too early to tell what Brexit means

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U.S. central bankers will take time to judge whether the U.K. vote to leave the European Union affects the outlook for the U.S. economy, said Federal Reserve Vice Chairman Stanley Fischer.

“We are going to have to wait and see,” Fischer said Friday in an interview on CNBC television. “It clearly is a huge event for the U.K. and it’s an important event for Europe.”

Fischer, the most senior Fed official to comment publicly since the U.K.’s June 23 referendum, said that his first reaction to the decision had been “extreme surprise” and the fallout could make itself felt on the U.S. through a range of channels.

“Our direct trade with Britain is not going to make a huge difference to us, but it could set off -- there are a lot of things that will follow from Brexit for Europe, for the United Kingdom, and those are the things we will have to be thinking about,” he said.

Fed officials next meet on July 26-27 to weigh their policy options. Britain’s vote to leave has dashed investor expectations of a federal funds rate increase this year, following a hike in December that marked the first in nearly a decade. Officials in June had projected two rate increases this year, according to the median of their estimates.

Too Early

Cleveland Fed President Loretta Mester separately told an audience in London that “while the risks and uncertainty surrounding the outlook have increased, it is too early to judge whether conditions in the aftermath of the decision will necessitate a material change” in her outlook for the U.S. economy. She also said that waiting to long to raise rates could stoke financial market instability.

Longer-term Treasury yields fell to record lows Friday following the release of weaker-than-expected Chinese manufacturing data and ongoing political turmoil in the U.K. following the referendum.

Fischer said that after “very bad” U.S. employment data for May, other reports have shown the U.S. economy “has done pretty well” and that “most of the incoming data look good.”

“Now, you can’t make a whole story out of a month-and-a-half of data, but this is looking better than it had before, so as we consider the effects of Brexit, we have to put that effect on the U.S. together with what else is going on in the U.S. economy,” Fischer said in his first public comments on the economy since March 7. “I hope that we strengthen, and that the economy strengthens, and that we continue along this slow, very gradual path we’ve been on.”

— With assistance by Lucy Meakin

(Updates with comment by Fed’s Mester in sixth paragraph.)
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