Economic growth threatened by Katrina devastation
September 7, 2005
The most recent report on the US economy from the Federal Reserve, completed before Hurricane Katrina struck the Gulf Coast but released Wednesday, showed that the economy was quite healthy.
Now, however, the Congressional Budget Office and private economists are saying that they believe that US economic growth in the second half will be half a percent to a full 1 percent lower than it would have been had the hurricane not occurred.
What the impact of the storm will be on the budget deficit is still to be seen, according to the CBO. Before the storm, the Bush administration had predicted that the deficit would fall to $333 billion, lower than last years $412 billion deficit.
The CBO says that privately insured losses could reach $30 billion, and that as many as 400,000 jobs could be lost to the storm. Besides oil prices, the price of many other items, including lumber and coffee, could rise as a direct result of the effects of the storm.
The uncertainty over exactly how much impact Katrina and the recover from her effects will have on the US economy has analysts split on whether or not the Fed will raise interest rates when it meets on September 20, with some convinced that rates will not be raised this month, while others are certain that rates will go up again to deal with the inflation expected to be produced by rising prices in the wake of the storm.
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