"One development that could shift investors' sentiment is the upcoming referendum in the United Kingdom. A UK vote to exit the European Union could have significant economic repercussions," the US Federal Reserve Board Chairwoman Janet L Yellen told lawmakers.
Yellen said the Federal Reserve Board is closely monitoring global economic and financial developments and their implications on domestic economic activity, labour markets and inflation. Yellen said US-Britain ties is a very important relationship.
"I think it would usher in a period of uncertainty and it is very hard to predict, but there could a period of financial market volatility that would negatively affect financial conditions and the US economic outlook that's by no means certain, but it is something that we will be carefully monitoring," Yellen said, responding to questions from lawmakers who expressed concern over Britain exiting from the European Union.
"I think it could have significant economic consequences by launching a period of uncertainly, both for the United Kingdom and possibly the future of European economic integration. Most analyses suggest it would have negative economic consequences for the UK and spillover to Europe," Yellen said.
"More broadly speaking, I think the financial market reaction to the uncertainties that would be unleashed by that decision could result in a kind of risk -off sentiment that we would see impacts on financial markets, that we might see flight to safety flows that could push up the dollar or other so-called safe haven currencies," she said.
"I don't want to overblow the likely impacts, but we're aware of them. We will watch them and consider those impacts as we make future decisions on monetary policy," she said.