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How Much Impact Will Brexit Have On U.S.?

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How Much Impact Will Brexit Have On U.S.?

In June, the United Kingdom decided it was time to break-up with the European Nation. 

June 23, 2016, marked a referendum that would be remembered in History books, and shocked more than a nation, but the world. 

The following diagram shows the members of the European Union:

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President James Bullard of the St. Louis Federal Reserve Bank stated that he thinks the United Kingdom’s decision to separate from the European Union last month will not have an effect that lasts very long on the economy for the United States. 

Loretta Mester, the Fed Chief for Cleveland, is also saying that Brexit doesn’t pose a significant threat to the United States Economy.

On Tuesday, Bullard told reporters that he believes now that time has passed, and the markets have been able to process the action that the overall impact on the economy for the United States will be almost nothing. 

He was in St. Louis when he stated this and had just given a speech.

Mester and Bullard are both voters for the Federal Open Market Committee, that sets policies, this year. 

Mester relayed to Sydney Reporters that because the United States tends to remain mostly closed in nature when it comes to relying on exported goods, she doesn’t expect Brexit to have an enormous impact on the economy. 

She further stated that Brexit would remain in the sight of officials as they think about the outlook for the United States.

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What is Expected?

It is expected that Fed officials will review the impact of the decision the United Kingdom made when they meet again on July 26 through the 27. 

It is also anticipated that they will also look at data that relates there has been a sharp rebound for United State payrolls in June after the disappointments in May.

The following list shows what is expected to take place in the next few months:

  • There is only a 4% chance that a rate increase will be held in July. This is according to the pricing that is found in futures contracts for federal funds.
  • The opportunities that a move will take place by December of this year are back up to 34%.
  • After the United Kingdom had held its historic referendum on June 23, the odds that a move would take place by December of this year had fallen to about 8%.

Why Yields On Treasuries Fell After Brexit

After Brexit had taken place, the yields on U.S Treasuries reached historic lows. 

Bullard says that this was a direct result of the shock that happened in the aftermath of the United Kingdom deciding to leave the European Union. 

In the chart located below, you can see the United Kingdom’s displeasure with the European Union:

p15

Bullard further stated that it appears Wall Street is taking the treasuries lows as a sign that growth has begun slowing down in the United States. 

However, he says that he believes the lows are simply their way of finding safety in the uncertainty Brexit seems to have caused. 

He says that he would not take these lows as a sign of growth prospect for the United States of America.

Bullard gave an argument on June 17, and in his speech he just repeated this same argument. 

He had argued that the United States will be stuck for the next two or three years in an environment consisting of moderate growth. 

He further stated that Fed Officials needed to do everything they could to ensure the federal funds rate would remain the same throughout this time frame.

  • When Fed officials held their meeting from June 14 to June 15, the benchmark for federal funds:
  • Stayed from .25% to .5%.
  • They were waiting for more information surround the status of the United States Labor Market, However
  • They also wanted to wait to better assess the consequences the United States would feel as a result to Brexit.

Employment

Bullard stated that the June employment robust report that added 287,000 workers to payrolls reflected that the poor performance experienced in might had been nothing more than an anomaly. 

He stated this in reply to questions he recovered from reporters.

In May, the performance was at 11,000 new jobs

He further said that the expected employment growth trend slowing down is reflected by the average for this increase over the past three-month period.

Is The Payroll Slowing?

Bullard stated that he would expect job growth to continue to slow down as far as pace goes. 

He says that it is impossible to add 200,000 jobs within a month’s time these days.

The Fed chief for Saint Louis, however, reports that:

  • He isn’t expecting the labor market becoming tighter to result in inflation getting higher.
  • He says that this is because GDP growth will probably stay too weak for this to happen.
  • It is predicted that GDP growth is expected to remain at approximately 2%.
  • He further stated that we might need to adjust some if there was an association between job growth occurring at a rapid pace and economic growth suddenly shooting very high.

Bullard was asked if the fiscal policy had a greater role to play when it came to boosting the United States outlook over the longer term. 

Bullard’s reply was that the United States was likely to achieve faster growth only if the other parts of government respond with policies that are aimed at addressing lower demographic trends and lower increase in productivity.

Bullard further stated that we needed an agenda for growth badly. 

He said that the central bank had also made this argument more than once. 

He stated that he and the central bank keep talking about this but no one seems to be listening.

The Economy

Others argue that American consumers are the biggest part of economic activity that takes place in the United States.

They say that when American consumers stop spending money, the economy halts in growth. 

They say that the amount these consumers spend is based on how they feel about where the country is going in the long run.

These people are predicting that if the volatility found in global stock markets continue, that both business owners and consumers in America could change their spending habits. 

Jim O’Sullivan says that the key to knowing if the economy in the United States has taken a hit will be keeping an eye on whether or not equities fall.

Overall, however, the opinion seems to be that the United States economy has seen the worst of its fallout from the Brexit vote. 

The economy in the United States isn’t expected to get any worse as a result of this decision.

The economy in the United Kingdom, however, is less certain.

The following data shows the negative economic outlook for the United Kingdom following Brexit:

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