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Fed Presidents Says Brexit Will Impact Interest Rate Decision

San Francisco Federal Reserve Bank Chief Executive Officer John Williams InterviewSan Francisco Federal Reserve Bank Chief Executive Officer John Williams Interview
John Williams, president and chief executive officer of the Federal Reserve Bank San Francisco, has consistently had a sunny outlook for the economy.Photo by Bloomberg Bloomberg — Getty Images

Britain’s vote next month on whether to leave the European Union is shaping up to be the next global event to impact the U.S. central bank’s next interest-rate hike decision.

San Francisco Fed President John Williams on Thursday became the latest U.S. central banker to suggest that the June 23 vote on Brexit could play into any Fed decision at its policy meeting in mid-June.

“Clearly if there’s an expectation that it actually will pass and the markets will react to that then we have to take that into consideration in terms of how it affects the U.S. economy and the outlook,”Williams told Reuters on the sidelines of a conference at Stanford University’s Hoover Institution.

Williams on Thursday told CNBC that given strong U.S. jobs gains and signs of stirring inflation, two or three rate hikes this year seem reasonable.

His views on Brexit echo those of Atlanta Fed President Dennis Lockhart, who is attending the same conference, and who earlier this week said Britain’s vote could “loom large” as the U.S. central bank contemplates whether to raise interest rates at its next policy meeting.

Polls show a tight race in Britain with the outcome likely uncertain before the Fed meets next on June 14-15.

The Fed raised rates from near zero for the first time in a decade in December but have since stood pat, in part because of global economic uncertainty.

Dallas Fed President Robert Kaplan, also at Stanford on Thursday, said during a visit to London last week the Brexit vote will be a factor in the Fed’s June decision unless the outcome of the vote is very clear ahead of time..

The view that Brexit is a deciding factor, however, is not monolithic at the Fed, as comments form St. Louis Fed President James Bullard earlier on Thursday show.

“International influences … appear to be waning during the first half of 2016,” Bullard at an event in Santa Barbara, California, before heading to Stanford to join his colleagues at the conference.

Fed officials in March suggested they expect two rate hikes will be appropriate this year; traders of futures tied to U.S. rates are betting on just one.

Bullard told reporters before the speech that the “pretty big gap” between the rate views makes it difficult to conclude who is more accurate.

He also said he does not see Britain’s referendum as a global stress event.

“Even if the UK votes to exit there will be a long period of negotiation,” Bullard said.