During a recent appearance in New York, Cleveland Federal Reserve Bank President, Loretta Mester, acknowledged that Britain’s recent vote to leave the EU is likely to affect the United States in several different ways, but she said she believes that biggest concern is how the volatility and uncertainty resulting from the vote might affect the financial markets. She also reiterated that the U.S. Central Bank still has sufficient breathing room to decide on how it should proceed with its current stance regarding interest rate policy.
The Brexit resulted in a huge amount of uncertainty, and the effects of this uncertainty were seen instantly in the world’s financial markets. However, a lot of that uncertainty has dissipated now that Britain has acted swiftly to find a replacement for Mr. Cameron who pledged to resign following the vote.
Naturally, there is still a lot of uncertainty, but at least the latest move by the British parliament has bought investors some time. As a result, there is far less pressure on the U.S. Central Bank to make a decision about how it should proceed with its interest rate policy. As Loretta Mester said, the United States needs to wait and see how things unfold before any drastic measures are implemented. Right now, nobody really knows what sort of impact Brexit is going to have on the financial markets once the process gets underway. A lot will depend on what is agreed on in Brussels in the near future.