What should U.S. monetary policy be in the wake of the June 23rd British referendum in which a majority voted to have the UK leave the European Union? We believe that this development places the Fed on a more gradual tightening path than we earlier anticipated but not frozen indefinitely at the current 3/8% federal funds rate.
Specifically, instead of our earlier expected two 25 basis point fed funds rate hikes in 2016, we now expect only one such move to occur at the December 13-14 Federal Open Market Committee (FOMC) meeting.
In addition, for 2017 we now anticipate two instead of four 25 basis point tightening moves.
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