While extreme scenarios are imaginable, we believe that, based on the reactions of financial and currency markets to date, a balanced perspective is that Brexit is a modest negative for the US economy, not a game-changer. Given the newfound uncertainties,the results are necessarily speculative. However, simulations with our macro model suggest that Brexit might trim 0.1 percentage point from US GDP through 2018. This would nudge the unemployment rate up 15 basis points, and might encourage the FOMC to delay further increases in the federal funds until late this year or early next year. The full report to the document can be found here
Yesterday’s BREXIT vote has been followed by significant adverse financial repercussions — swings in exchange rates, including a stronger dollar; weaker equities in Europe and in the US; heightened volatility in equity markets; sharp declines in energy prices (in dollars); and very sharp declines in term Treasury yields. The referendum appears to usher in a period of heightened uncertainty that further clouds the outlook for global growth. In response, the Fed announced that it was carefully monitoring developments in global financial markets and is prepared to enhance dollar liquidity through existing swap lines with foreign central banks. The full report to the document can be found here.