The Federal Reserve is worried that a Greece exit from the euro, the so-called Grexit, could disrupt U.S. Financial markets.
That may seem obvious. But U.S. Investors have been relatively calm about the problems in Greece. And a number of economists have said that losses on Greek bonds are unlikely to be felt much in the U.S.
Nonetheless, in its most recent meeting, a number of Fed officials (the notes say “many participants”) “expressed concern that a failure of Greece and its official creditors to resolve their differences could result in disruptions in financial markets.” The main concern was that a Grexit would detrimentally effect markets in the “euro area,” but Fed officials also expressed concerns about a spillover into the U.S.
The Fed meeting took place in mid-June. The notes, which typically are released with a lag, came out on Wednesday. Since the meeting, it has grown increasingly likely that Greece will exit the euro, though it is far from certain. European leaders have given Greece until Sunday to come up with a plan to please its creditors.
China’s stock market plunge had only just begun when the Fed last met. So perhaps unsurprisingly, Chinese stocks barely get a mention in the Fed’s notes. In fact, the minutes include mention that China (and Japan) appears to be one of the few markets that have held up well despite the problems in Greece. This is obviously not true anymore.
Fed officials did note that there were concerns about the pace of economic activity abroad, especially in China. But there is no mention in the notes about the huge run up in Chinese stocks over the past year, and what could happen if that market collapses. So when it comes to calling bubbles, like the 2000s housing market, the Fed’s poor track record is intact.
