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Cotton Questions Federal Reserve Chair on Brexit

June 21, 2016

Contact: Caroline Rabbitt (202) 224-2353

Washington, D.C.-- Today during a Senate Banking Committee hearing Senator Tom Cotton (R-Arkansas) questioned the Honorable Janet L. Yellen, Chair, Board of Governors of the Federal Reserve about Britain's upcoming referendum on membership in the European Union ("Brexit"). A full transcript of their exchange can be found below. Click here to watch the video in full.

Q: Thank you, and thank you Chair for being before us again, I know these are always two highlights of every year for you. I want to return to some of the earlier discussion of the so called Brexit, the referendum that will occur in the United Kingdom on Thursday on whether Great Britain should remain or leave the EU. Your testimony, on page four, says, "one development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A UK vote to exit the European Union could have significant economic repercussions." Could, which you stressed to Senator Heller in his comments. That sounds to me like the usual prudence and caution you use in all of your public statements. You also stated to Senator Heller that, "I don't want to overblow the likely impacts.". That reminds me of Yogi Berra's old sage advice that predictions are hard, especially about the future.

A: That's absolutely true, I couldn't agree with that more.

Q: Yet in the last few minutes here's how The Guardian of London reports your testimony to the committee, "Yellen warns on Brexit." Not exactly what you said, is it?

A: I said that we are monitoring it and that it could have consequences for the United States.

Q: You wouldn't characterize your testimony as a "warning" on the Brexit?

A: If that means that I am warning UK residents. I am not attempting to take a stand. They are going to go to the polls, they've had an active debate on the issues, and I am not providing advice in that sense.

Q: Thank you. I sympathize when headlines don't exactly capture the exact meaning of what one says. And to be fair to The Guardian, they are not the only outlet that has reported your testimony along those lines. The BBC, Reuter, CNBC, and Fortune have as well. So, to be crystal clear, you take no position on whether UK citizens should vote to leave the EU and the Federal Reserve takes no position.

A: That's correct. It is for them to decide. I'm simply saying the decision could have economic consequences that would be relevant to the U.S. economic outlook that we need to monitor carefully.

Q: Thank you for that, because I certainly think that we all in America, particularly in positions of leadership in our government, should respect the British people's sovereign right to govern their own affairs. The one point you made in earlier comments about Brexit, about the potential source of these economic repercussions is, "a period of uncertainty." That's something that I hear frequently in commentary about the Brexit. Is there any time when the global economy or the U.S. economy does not operate in a condition of uncertainty?

A: Well there is uncertainty, but this is a unique event that has no close parallel. It's hard to know what the consequences would be. Of course there is always uncertainty both domestically and globally, we operate in an uncertain environment.

Q: Many of your counterparts in the continent, many of my elected counterparts in the continent, have not treated the matter so evenhandedly. They've opined on what British citizens should do. They've also been responsible for other things that have caused uncertainties in recent years, like the Greek debt crisis or other debt crisis in Europe, or the suspension of the Schengen Zone privileges because of the flow of migrants into Europe, and terrorists now infiltrating that flow and launching attacks in Paris and just a few blocks away from the heart of the European Union. Those would all, also, potentially cause periods of uncertainty in the European and global economy, wouldn't they?

A: Absolutely.

Q: Is there risk that some of the dire predictions about Brexit or the reaction to the Brexit could become a self-fulfilling prophecy in the economy? Some British politicians have promised, or perhaps I should say threatened, immediate tax increases or budget cuts if the UK citizens vote to leave. Some continental leaders have threatened punitive and retaliatory action if UK votes to leave. Our own president has said that the United Kingdom would have to "go to the back of the queue" for any new trade agreement. Do these statements have the potential to create a self-fulfilling prophecy that would lead to increased uncertainty whatever the outcome on Thursday?

A: I don't want to comment on what various participants in this debate have said or the advice they've given the British people. There is an active debate. It's not inappropriate with the decision of this sort for many parties to weigh in about the consequences. As I said, I am not trying to offer advice myself to the UK residents who are about to go to the polls.

Q: Thank you, nor am I. One final point, your counterpart at the ECB has said that the ECB "is ready for all contingencies following the UK's EU referendum." Can you say the same thing about the Federal Reserve, you're ready for all contingencies following the vote on Thursday?

A: Well in the sense that we will closely monitor what the economic consequences would be and are prepared to act in light of that assessment.

Q: And should the UK vote to leave the EU, the United States government as a whole, and the Federal Reserve in particular, will handle that contingency in the spirit of magnanimity, generosity, and friendship among nations?

A: Well it would certainly be my inclination to do so.

Q: Thank you for that.