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Katrina, Sandy, Harvey – Fed keeps up with storms News

Sunday, September 3rd, 2017 | Economy

"This natural disaster will probably not affect the economy as well as monetary policy as a whole," predicts the economist Brett Ryan of Deutsche Bank. Together with his colleague Matthew Luzzetti, he concludes in a research paper that the Fed should not let the short-term fluctuations in the growth data through "Harvey" off course. The central bank will soon be tackling the dismantling of its balance sheet, which will be heavily inflated in the fight against the backdrop of the crisis, and will tackle a further rate hike if the economy allows it.
Harper, although in the short term, will be dampened by "Harvey", but in the long run without major bruises, as JPMorgan's experts predict in a study on the consequences of the hurricane: "In general, hurricanes dampen economic activity in the short term . "
A look at the situation in the particularly affected states of Texas and Louisiana underpins the first part of the thesis. Because of the floods in the metropolitan area of ​​Houston, chemical plants have exploded. Between 17 and 27 percent of US refinery capacities are broke due to the impact of the storm. This will drive up the price of gasoline, which is likely to be felt by many retailers in the US. The additional money required for fuel will have to be saved by consumers.
Future economic stimulus
Also many large ports in the region are closed. As a result of the storm and flood catastrophe, unemployment is likely to rise and a short-term slowdown in overall growth is expected. According to an estimate by Goldman Sachs, "Harvey" alone is worth 30 billion dollars. But there is also an opportunity for the economy: when the reconstruction starts and the storm victims are paid out of their insurance, the economy will be given new impulses.
Despite the devastating effect of the hurricane, experts point out that the US has already hit harder in the past. In 2005 "Katrina" swept across the southern United States, leaving behind visible traces of devastation in New Orleans. Estimated damages at that time: 150 billion dollars. Also under the impression of this monster storm, the former president of the Central Bank of San Francisco, as well as today's Fed chief, Janet Yellen, pleaded to keep the head cool and to keep monetary policy.
She warned that a change of direction due to the hurricane could even be counterproductive, as market participants might feel misguided. The hurricane "Sandy", which was seven years later than the North-East of the US, was not a big issue for the Fed: the hurricane was hardly mentioned in the minutes of the then interest rate meeting.


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