2016.05.3004:37:00UTC+00Brexit Anxiety Keeps Traders Away from Pricing Hike in June

Consider yourself at the hot seat of Federal Reserve, looking forward to raise rates and think about your goals – Maximum employment & price stability. While unemployment rate is close to levels that can be considered as normal in the long run, there is a possibility of higher inflation. The latter as of now is a risk in the matrix but far from being a threat.

Now, under that situation, if you know that within days of your monetary policy decision, an event is scheduled that can cause financial turmoil globally and may even impact U.S. economy, would you still go for a rate increase or would you prefer to wait it out and execute the hike at next available date, which is in just six weeks.

This is the situation within FED, about June hike. FED chair Janet Yellen, in her speech last Friday at Harvard, echoed views of her colleagues that hike is coming soon but fell short of pointing at June. So it could be July as well.

Similar is with market participants. They are falling short of pricing a hike in June. They are pricing 30% chance of a hike in June and 62% in July.