A major global central bank could cut interest rates in the week ahead. It isn’t the U.S. Federal Reserve, at least not yet.
American central bankers have been trying to raise interest rates for months. While they have been patient, they have been persistent in their message of wanting to raise short-term interest rates. However, the economy (and global affairs) just has not been cooperating.
First, it was the awful beginning of the year for stocks. Then a drop in hiring. Now Brexit.
This leads to the Bank of England and its monthly monetary policy meeting on Thursday. Already, the U.K. central bank has predicted a “material slowing” of the British economy thanks to voters’ decision to leave the European Union. Last week, it said evidence of the economic risks has “begun to crystallize.” It called the outlook for a stable economy in the U.K. “challenging.”
All of this, and yet the U.K. hasn’t taken any further action to divorce itself from the European Union other than the vote itself about two weeks ago. Stocks have recovered from the initial sell-off, but the British pound remains weak (meaning the U.S. dollar has strengthened) and bond interest rates here and there have fallen to new post-recession lows (meaning bond prices are hitting new highs).
The British economy is not the American economy. The U.S. didn’t vote to leave a massive economic alliance. Still, our Federal Reserve has shown that it is not immune to global economic disturbances. U.S. investors will feel Thursday’s decision by the Bank of England on British interest rates. And it could figure into the Fed’s own decision later this month.
Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami. Follow him on Twitter @hudsonsview.