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The Week Ahead: Will ‘Brexit' push Fed away from interest rate hikes?

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, but the economy and global affairs have not been cooperating.

First, the stock markets experienced an awful start to the year. Next came a drop in hiring. Now we have Britain’s exit from the European Union.

This latest development is what 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’ so-called Brexit decision. Last week, it said evidence of economic risks “have begun to crystallize.” It called the outlook for a stable economy in the U.K. “challenging.”

All of this, even though the U.K. hasn’t taken any action to actually divorce itself from the EU beyond the vote taken last month.

Stocks have recovered from an initial sell-off, but the British pound remains weak, meaning the U.S. dollar has strengthened. 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, @HudsonsView.

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