The Post-Brexit U.S. Economy Is Doing Just Fine, Thank You Very Much
But a strong U.S. dollar could cause financial pain in the United States down the line.
It’s been less than two weeks since Britain voted to leave the United Kingdom, and the early results show some bad news for Britons and some good news for Americans: predictions that the Brexit would hammer the British economy have proven true, but the dire warnings that it would also hurt the U.S. one haven’t come to pass.
It’s been less than two weeks since Britain voted to leave the United Kingdom, and the early results show some bad news for Britons and some good news for Americans: predictions that the Brexit would hammer the British economy have proven true, but the dire warnings that it would also hurt the U.S. one haven’t come to pass.
In the run-up to the June 23 vote, President Barack Obama tried to persuade British voters to remain in the European Union so that London could be part of a massive trade deal between the U.S. and Europe. Minutes from the U.S. Federal Reserve’s June meeting show that the central bank is reluctant to hike interest rates because it fears the UK’s departure from the EU could negatively impact the American economy.
It’s too early to conclusively say whether the Brexit will have long-term repercussions outside the UK. In the short-term, though, the U.S. economy continues to chug along.
Two indicators show the strength of the U.S. economy. On Tuesday, the Dow Jones Industrial Average joined the S&P 500 in taking out its 2015 all-time high, reaching into previously untouched territory. As of close of business Tuesday, the Dow stood at 18,347.67, about 35 points above the previous record set May 19, 2015. It’s continuing its climb Wednesday, up slightly in midday trading. The S&P 500 closed at 2,152.14 Tuesday, a 15-point improvement on its Monday close.
The post-Brexit rally comes after an unexpectedly positive U.S. jobs report Friday that found the U.S. economy added a better-than-expected 287,000 jobs last month, well up from the 11,000 in May, a sign job growth had regained speed after a brief slow down. Speaking in Sydney, Australia, Wednesday, Cleveland Fed President Loretta Mester cautioned that it’s still too early to tell if the Brexit would drag down the U.S. economy, but said the jobs report alleviated “concerns” about a broader American slowdown.
Still, there’s a looming threat to the United States that continues to get worse; the value of the British pound is nose-diving, reaching its lowest levels against the dollar in 31 years this week. This makes U.S. good more expensive to foreign customers and discourages foreign tourists from visiting American destinations. Meanwhile, customers have pulled billions of dollars invested in UK-based funds out of the country.
Check out the chart below to visualize the carnage.
It may take a few months for the two industries to truly know whether they’re taking a Brexit-related hit. The U.S., in other words, isn’t out of the woods just yet.
Photo credit: DREW ANGERER/Getty Images
David Francis was a staff writer at Foreign Policy from 2014-2017.
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