How Will Greece's Problems Affect The Fed?

The sudden sharp decline in Greece's bailout negotiations sent shockwaves throughout international markets and gave investors reason to believe that the nation was headed for an exit from the eurozone. In the US, markets remained relatively calm with the Dow Jones Industrial Average losing just 1.95 percent on Monday following news of Greece's scheduled referendum vote. Now, investors are turning their focus to the Federal Reserve to see if the bank will still raise interest rates despite the international turmoil.

For now,

that Greece's financial turmoil won't have much of an impact on the Fed's decision making when it comes to a rate hike. Because Greece has been struggling to stay afloat for years, many believe the shock to markets will be minimal as most investors have already wound down their positions in the nation. The Bank for International Settlements reported that US banks have only invested about $12 billion in Greece, a figure that won't spell disaster if the nation exits the eurozone.

One issue the Fed could face would be a stronger dollar. The dollar's recent rally has already taken a toll US-based firms' bottom lines as it has made their foreign sales less profitable and their products more expensive than foreign competitors'. The bank is likely to keep the greenback in mind when evaluating whether or not the US can withstand a rate hike.

So far, Fed officials have been adamant that their decisions will be based on US data and whether or not the nation's economic improvement warrants a rate increase. With most analysts expecting the bank to raise rates in September, the Fed will have plenty of time to see how the Greek situation plays out. If the problems in Greece become a contagion affecting the global economy, then the bank will likely hold off on a rate hike. But if the issue passes without much impact on US markets, the bank will likely proceed as planned.