US economy not immune: Fed to stay on hold – Danske Bank

Mikael Olai Milhøj, Senior Analyst at Danske Bank, suggests that the US is not immune to a slowdown in Europe.

Key Quotes

“At the June FOMC meeting, Fed chair Yellen said that a ‘Brexit’ ‘could have consequences’ for the US economic outlook and financial market developments.

The European debt crisis in 2011-13 also hit the US, which slowed down markedly. During this period, Fed launched QE3 to support the economy.

Fed will monitor incoming data thoroughly to analyse impact of Brexit on US. We expect US economy to slow but to avoid recession.

We now expect the Fed to stay on hold at least for the rest of 2016.

If easing is needed, the Fed will likely cut rates down back to 0.00-0.25% and start a new round of QE. The Fed seems to prefer not to lower rates down to negative territory.

The market is now only pricing a full Fed rate hike by Q4-2017.”