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Grexit could delay US rate hike

Grexit could delay US rate hike


July 1, AtoZForex .com Lagos – The Greece debt crisis has a far reach, exceeding just the Euro region as the effect is being felt in global financial markets. In the US for instance, Wall Street holds a heavy portion of Greek debt, so the unfolding of events and the eventual outcome of the situation will no doubt have a ripple effect on the US markets, which may result in US interest rate hike delay.

A number of industry veterans have opined that this could create a perfect excuse for the Fed to postpone the raising of rates further.

Former Fed Gov. Larry Lindsey and director of the National Economic Council for President George W. Bush. said: “They are going to use this as another reason to delay,” argued Lindsey,”The problem is all the delays haven’t solved anything.” “Eventually, the Fed will find itself way behind the curve. And that is going to be a very disturbing event for the markets and the economy.” Also stating that that U.S. debt and capital market distortions keep building.

Chairman and CEO of Southern Co., Tom Fanning, also chair of the Atlanta Fed’s board of directors,  aired his views on CNBC as well. He shared the same view with Lindsey that the Greek situation could delay the central bank’s first rate hike since 2006. “Everybody is fixated on when’s liftoff. Is it going to be September, December or even 2016? But I think the bigger question is the forward trajectory,” he said, “and how regular, predictable and sustainable will Fed actions be.”


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Also, both the IMF and the World bank have advised the US central bank to off raising rates till next year. The IMF said: “A later lift-off could imply a faster pace of rate increases following lift-off and may create a modest overshooting of inflation above the Fed’s medium-term goal (perhaps up toward 2.5 percent). However, deferring rate increases would provide valuable insurance against the risk of disinflation, policy reversal, and ending back at zero policy rates.”

Kaushik Basu, the World Bank’s chief economist also stated that: If I were advising the U.S. Fed, I would recommend that (higher rates) happen next year instead of late this year,” due to the mixed economic picture, Basu said, adding that it was his own view rather than that of the World Bank as a whole. My own concern is that a relatively early move (in U.S. rates) could cause an exchange rate movement, strengthening of the dollar, which will not be good for the U.S. economy” and have negative repercussions for other countries,” he said.

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ, nor should they be attributed to AtoZMarkets.

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