US Markets

The case for a July interest rate hike

Fed hike hint surprises economist
Fed hike hint surprises economist

The Federal Reserve has signaled it may raise interest rates in June, but next month's British referendum on whether to leave the European Union will likely keep policymakers on hold until July, some market watchers said Thursday.

Minutes from the Fed's April meeting revealed the Federal Open Market Committee will raise interest rates in June if economic data points to growth in the second quarter, as well as continued labor market improvement and progress toward the Fed's 2 percent inflation target.

But with Britons going to the polls just one week after the Fed meets on June 14-15, a rate hike next month still looks unlikely, said F.L. Putnam Investment Management CEO Tom Manning.

"Why is the Fed going to do anything ahead of the vote on the Brexit? They've probably laid the groundwork now for July," he told CNBC's "Squawk Box."

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Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the Brexit vote will be the elephant in the room at the June FOMC meeting.

Still, he said the Fed never believed the discouraging first-quarter GDP figures that showed the U.S. economy grew at 0.5 percent. Policymakers have instead pointed to strong labor market data, he said.

The rebound in oil prices has also increased inflation expectations, lending further support for a near-term rate increase, he said.

"We've had a bunch of Fed people coming out over the last few days saying two to three rate hikes this year, which the market has been in total denial about, and then we get the minutes saying if the data are decent we're going in June," he told "Squawk Box."

"So they are setting us up for this now," he said.

The Brexit vote won't be a landslide, Shepherdson said, but he expects the country to experience an "outburst of rationality" and vote to stay in the EU.

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