Brexit Played Role on Fed Rate Decision, CNBC Discusses

CNBC reporters and guest Janus Capital's Bill Gross discussed the Federal Reserve's deciding factors in not raising interest rates in June, reported today.
By Lindsay Rittenhouse ,

NEW YORK (TheStreet) -- The Federal Reserve weighed the possible outcomes of the U.K.'s vote to leave the European Union before deciding on June 15 not to increase interest rates, CNBC's Eamon Javers reported on "Power Lunch" Wednesday.

In addition to most Fed members being concerned that the Brexit "could generate financial market turbulence," participants noted the weak May jobs report at its most recent June meeting, the results of which were announced this afternoon.

However, most members did not consider the jobs report a deciding factor in raising federal fund rates, Javers said.

Putting the jobs report and Brexit aside, most members considered hiking rates on only three conditions: "One, the economic information confirmed economic growth picked up. (Two), that job gains were continuing at a pace sufficient to sustain progress toward the committee's maximum employment objective. Three, inflation was likely to rise to 2% over the medium term," Javers continued.

Fed members were nearly split on whether the current economic conditions would warrant a rate increase or if a hike would create more risk to financial stability, according to Javers.

"The Fed got something right. Brexit could cause volatility. So, that forecast was correct," CNBC's Michelle Caruso-Cabrera joked.

When the Brexit vote was first announced late last month, global markets went into turbulence, with the Dow Jones alone closing down by around 600 points.

Markets across the world have since started to recover including the U.S. Late this afternoon, the Dow is higher by around 68 points, the S&P 500 is up by about 9 points and the NASDAQ is rising by around 32 points.

In addition, several Fed members raised the concern that the committee did not properly communicate with the public on factors leading to a rate decision, Javers noted.

Janus Capital Lead Portfolio Manager Bill Gross, who appeared on CNBC today, agreed that there is a lack of necessary communication.

"Investors become confused when they look at the green dots as high as they are and when they hear from others that suggest reliance on old standard models. I think ultimately what the Fed really wants to do is keep the interest rate low and perhaps keep the curve as positive as possible," Gross explained.

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