Why Greece is just a sideshow for the Fed

Grexit a 'danergous experiment': Larry Summers
Grexit a 'danergous experiment': Larry Summers   

Greece is engulfed in a crisis that could end with its exit from the euro zone, but analysts say this does little to change the outlook for the other key event markets are awaiting—a rise in U.S. interest rates.

"At the margin that's a factor that could tilt the balance towards being more cautious in raising interest rates in the U.K. and the U.S. but it won't be the main factor, especially for the (U.S.) Federal Reserve, and we still think it's likely the Fed will raise rates later this year," Andrew Kenningham, a senior economist at Capital Economics, told CNBC on Tuesday.

Greece is widely expected to miss a $1.7 billion loan payment to the International Monetary Fund on Tuesday—just as its official bailout package expires at midnight. This would push the debt-stricken country closer to a default.

"What's happening in Greece won't come as complete surprise to central bankers, but the situation has deteriorated substantially in the past week and there's a much higher risk that Greece ends up having to leave the euro zone or heads to default on a lot of its official debt," Kenningham told CNBC.

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But despite the worsening crisis in Greece, which has seen global markets rattled by the imposition of capital controls, the damage done may not be severe enough to prompt the Federal Reserve to re-consider the timing of a rise in interest rates, analysts said.

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Instead, the Fed is still tipped to deliver its first interest rate hike in nine years this September, as economic conditions in the U.S. improve.

"There's close to zero impact (from Greece) on the Fed, which is looking at the (U.S.) jobs market," said Simon French, an economist at investment firm Panmure Gordon in London.

"It is quite noticeable that the people who are talking about this (the crisis in Greece) are at a political level rather than an economic level, because they are concerned about Greece moving more towards Russia and China in terms of their financial clout," he said.

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Reserve Bank of New York President William Dudley told the Financial Times on Monday that a U.S. rate rise in September was "very much in play."

U.S. Treasury Secretary Jack Lew on Sunday told Greek Prime Minister Alexis Tsipras that Athens and its creditors should continue to seek a resolution. This comes ahead of a Greek referendum next Sunday on whether to accept the creditors' demands for further austerity in return for cash.

Could Fed be bigger for markets than Greece?
Could Fed be bigger for markets than Greece?   

What about Europe?

Developments in Greece may not alter the U.S. rate outlook, but could impact the U.K. where talk of a rate hike has grown louder in recent weeks amid signs of a strengthening labor market.

The crisis in Greece has boosted the appeal of sterling, which is seen as a safe-haven asset at a time of market volatility.

But the strength in sterling, which extended its gains against the euro on Tuesday, could encourage the Bank of England to hold rates down for longer than anticipated since it puts downward pressure on inflation and hurts exporters.

"Sterling's strength versus the euro is keeping inflation under control and the longer it remains at an elevated level, the longer that supports the case for keeping rates lower," said Panmure's French.

Sterling has risen around 8.5 percent against the euro this year.

For the European Central Bank meanwhile, Greece is one more reason why to expect hefty monetary stimulus in the region to remain in place for some time, analysts said.