SAN FRANCISCO (Reuters) - Britain's vote to exit the European Union last week will tend to reduce economic growth, but its political and economic effects will take "a significant amount of time" to unfold, Dallas Federal Reserve Bank President Robert Kaplan said.
In an interview with Bloomberg News published Thursday, Kaplan noted the gap between the market's view that the Fed would not raise rates until well into next year and the Fed's view, expressed before the Brexit vote, that there will be room to raise rates twice before the end of this year.
"(M)y guess is you’re going to see some convergence between what we’re planning on doing and what the market thinks we are going to do," he said, according to Bloomberg.
Kaplan declined to comment on his own outlook for rate increases, Bloomberg reported, but noted that market expectations could move on economic data, including next week's June jobs report, to be released before the Fed next meets July 26-27.
Kaplan said he worried about whether there would be what he called "contagion" after the U.K. decision to leave.
"What does Ireland do? What does Scotland do? What do other EU countries do?" he said, according to Bloomberg. The decision has already roiled global financial markets, although U.S. stocks have recovered much of the losses they suffered in the first days since the vote.
"I think an event like this on balance is going to tend to reduce GDP growth,” Kaplan said, according to Bloomberg.