‘Brexit’ fallout fears weighed on Federal Reserve officials at June meeting, minutes show

Federal Reserve policymakers, already worried about surprisingly weak U.S. job growth, expressed concerns at their most recent meeting last month over the “potential economic and financial market consequences” of a British vote to leave the European Union, according to an account released Wednesday.

Because of the “considerable uncertainty” surrounding the then-pending “Brexit” referendum, Fed officials unanimously decided on June 15 to hold their benchmark interest rate steady at between 0.25% and 0.5%.

They said they wanted to see more data to determine if May’s paltry job growth of 38,000 was an anomaly or a sign of a labor market slowdown.

“In addition, participants generally thought that it would be prudent to wait for the outcome of the upcoming referendum in the United Kingdom… in order to assess the consequences of the vote for global financial market conditions and the U.S. economic outlook,” according to minutes of the meeting.

Some of their fears about the June 23 referendum, which was a key topic of discussion at the meeting, have been realized. Major stock indexes in the U.S. and abroad fell sharply in the wake of the British decision to split from the EU.

And although financial markets have stabilized somewhat, analysts now don’t expect another Fed interest rate hike for months. Fed Chairwoman Janet L. Yellen said last month that the Fed held off on a rate hike in part because policymakers wanted to wait for the Brexit vote results.

Asked at a Senate hearing days before the vote if she thought a British decision to leave the EU would push the U.S. into recession, Yellen said, “I don’t think that’s the most likely case, but we just don’t really know what will happen, and we’ll have to watch very carefully.”

Minutes of the Fed’s June meeting, released Wednesday with the usual three-week delay, showed significant concerns about the potential implications of the vote.

“Most participants noted that the upcoming British referendum… could generate financial market turbulence that could adversely affect domestic economic performance,” the minutes said.

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Fed officials have said they were closely monitoring the fallout. And two policymakers said this week that the effects on financial markets were about as expected.

The world financial system was “reasonably well prepared” for the fallout from the vote, Fed Gov. Daniel Tarullo said at a Washington forum Wednesday hosted by the Wall Street Journal. The Fed was watching for the broader effects on the U.S. economy, which was not “running hot” right now, he said.

The latest estimate from the Federal Reserve Bank of Atlanta’s closely watched model estimated the economy expanded at a 2.4% annual rate from April through June.That would be a significant improvement from the anemic 1.1% rate in the first quarter but not booming growth.

Still, the Brexit vote should not have a major effect on the U.S. economy, predicted John Williams, president of the Federal Reserve Bank of San Francisco.

In an interview with Marketwatch published Tuesday, Williams called the vote “just one of the normal uncertainties that always occur in the global economy.” The impact on the U.S. economic outlook “is not nearly as big as other developments that have happened over the last seven or eight years,” he said.

Williams estimated the Brexit fallout would reduce U.S. economic growth this year by about one-tenth of a percentage point, to “a touch under 2%.”

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