Washington (TIP): Britain’s vote to exit the European Union has raised a cloud of uncertainty that could prove a headwind against the US economy, a senior Federal Reserve official said Thursday.
Dennis Lockhart, president of the Atlanta Fed, noted the surprise Brexit decision initially roiled financial markets for a few days but they have mostly returned to conditions before the June 23 referendum.
“It’s too early to sound the ‘all clear’ as regards financial market stability,” Lockhart told an economic summit in Idaho, according to his prepared remarks.
“Fed and other policymakers will need to stay on alert for signs of instability severe enough to pose a threat to the broad economy.”
Lockhart is not a voting member of the policy-setting Federal Open Market Committee this year. The next FOMC meeting is scheduled on July 26 and 27.
He said he was “surprised” by the referendum outcome which has “raised the general uncertainty quotient at work in the world.” He stressed the difficulty of forecasting the impact Britain’s split with the EU will have on the US economy. “Negative effects could materialize through the trade channel if there is a sustained realignment of the dollar-pound exchange rate. We might also see similar effects in our trade with Europe and the euro area,” he said.
Uncertainty that could reduce business investment in the US is “not helpful” for growth, he said.
“To summarize my view of Brexit effects: negligible near-term effect; a risk factor over the medium term; higher uncertainty that could amount to a persistent economic headwind.”