However the United Kingdom and the European Union fare when they go their separate ways, the United States so far has weathered the fallout from last Thursday’s Brexit vote and appears to be in good shape.
Markets finished Friday up for the fourth straight day, and the S&P 500 finished less than half a percentage point down from the day before Britain’s historic vote, after being down as much as 5 percent.
As the chances of a financial panic stemming from the vote decrease, economists were cautious but seemingly ready to disregard some of the doom scenarios that had been speculated on before the crisis.
Beth Ann Bovino, U.S. chief economist for S&P Global, said U.S. financial markets “absorbed the shock and they seemed to have, as in the old World War II British quote, ‘keep calm and carry on.’ Seems like the U.S. is doing that.”
The most immediate impact of the Brexit fallout, Bovino suggested, would be to alter the Federal Reserve’s plans for monetary policy. Lingering volatility in markets or uncertainty about the health of Europe would cause the Fed to lean toward keeping interest rates at very low levels for longer, rather than hiking them this summer or fall.
With the market fallout from the Brexit vote turning out not to be so severe, Bovino said, the reaction from the Fed would most likely be muted as well.
Fed officials on Friday suggested that they did not view the effects of Brexit as a big enough shock to override other considerations about the U.S. economy. None of three members of the central bank who spoke publicly Friday hinted that the vote would yield looser money.
“I think the verdict so far is that Brexit will not have big impact on the U.S., possibly zero,” Federal Reserve Bank of St. Louis President James Bullard said in an interview with Bloomberg TV.
Speaking at an event in the U.K., Cleveland Fed President Loretta Mester chalked up the normal functioning of financial markets to post-crisis banking regulation reforms, and suggested waiting longer before pronouncing on the effects of Brexit.
“Some of the tightening in financial conditions after the announcement of the vote’s outcome has been reversed in recent days,” Mester noted. “As we see how things play out, we will have a better sense of whether the medium-run U.S. economic outlook has been meaningfully affected and whether that changes our assessment of appropriate U.S. monetary policy going forward.”
Meanwhile, in an interview on CNBC, the Fed’s vice chairman Stanley Fischer downplayed the potential problems from Brexit, and noted that recent economic data for the U.S. had been strong.
As a country in which exports make up only slightly more than a tenth of economic output, the U.S. is able to withstand headwinds from overseas better than others. And recent domestic data, other than a weak May jobs report, have been relatively encouraging. That includes a manufacturing report Friday that easily beat investors’ expectations.
The message from the manufacturing data, wrote MUFG Union Bank chief financial economist Chris Rupkey, is: “Forget about Brexit and the rest of the world. It is nothing that will retard growth here in America.”
