Brexit a factor in US keeping rates on hold

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The US Federal Reserve will keep rates on hold between 0.25 per cent and 0.5 per cent, a move widely expected by the market following last month’s disappointing jobs results.

In a press conference following the announcement, US Federal Reserve chair Janet Yellen confirmed a vote by the UK to leave the European Union could have consequences for the US economy that “would be a factor in deciding on the appropriate path of policy.”

Yellen has previously said the repercussions of a Brexit vote from next week’s referendum could have “significant economic consequences”.

The addition of 38,000 jobs in May was below market expectations in the region of 162,000, prompting many to speculate any rate rise would be postponed until at least July.

In a statement on yesterday’s decision, the Federal Open Market Committee noted that the “pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up”.

The committee said inflation continued to run below its 2 per cent longer-run objective, which it attributed in part to declines in energy prices and prices of non-energy imports.

JPM Global Macro Opportunities fund portfolio manager Talib Sheikh says an additional rate hike could be on the cards in July or September with another at the end of the year.

“A bigger innovation in this meeting is that the committee continues to redefine the term ‘gradual’ over the longer horizon of its forecast, which now has flattened out to roughly two hikes per year for the foreseeable future,” Sheikh says.