This week: The 'Brexit' could hit the fan

Britain’s referendum on whether to leave the European Union looms as the biggest economic event of the week, overshadowing even Federal Reserve Chair Janet Yellen’s testimony before Congress. An affirmative vote is likely to shake stock and financial markets and could well prompt the Fed to further push back its next interest rate hike. This week also brings news on home sales and business investment.

Yellen’s testimony before the Senate banking committee on Tuesday is unlikely to break much new ground, coming just days after her post-meeting news conference last week. Yellen said the Fed still plans to gradually raise rates, but policymakers want to ensure that feeble job growth the past two months doesn’t signify a longer-term loss of momentum. She said a July rate hike is “not impossible,” which means it’s highly unlikely. A favorable June jobs report, sharp upward revisions for May and a British vote to stay in the EU likely all must coalesce to even put July on the table. Yellen could shed more light on Fed policymakers’ forecast for slower rate hikes the next few years amid headwinds such as sluggish labor productivity. She also will appear before the House financial services committee Wednesday.

Also Wednesday, the National Association of Realtors releases a report on May existing-home sales. After slumping in February, sales have risen two straight months. Homebuyers have been emboldened by solid job gains — notwithstanding the recent weakness — low household debt and affordable mortgages. Tepid wage gains have discouraged many first-time homebuyers, but pay increases have edged up recently. Economists estimate existing-home sales rose another 1.8% to a seasonally adjusted annual rate of 5.6 million.

New-home sales represent less than 10% of all sales but are a gauge of future housing starts, which boost the economy. Sales of newly built homes surged 16.6% in April to an annual rate of 619,000 — a post-recession high. A fall to earth is likely, but the pace should remain above the year-ago mark, says Nomura economist Lewis Alexander. Economists expect the Commerce Department Thursday to report a 9.5% drop to a still-solid 560,000 rate.

The so-called Brexit (British exit) vote already has rattled markets as recent polls show “leave” supporters pulling ahead. The U.S. exports relatively few products to the United Kingdom, but its withdrawal from the EU would disrupt the region’s trade and investment ties, likely spooking markets. Many economists still believe “stay” backers will eke out a victory.

Feeble global growth and the oil industry’s downturn has meant weak business investment. Capital goods orders excluding aircraft and defense — a proxy for capital spending — have fallen for several months. PNC Financial Services Group expects Commerce on Friday to report another 0.5% drop in May.