Storms won’t change Fed Reserve forecast

Hurricanes upend lives. They become demarcations for millions of people. There was life before the storm and life after. Harvey and Irma have done that. But don’t expect the storms to change the intent of the Federal Reserve to raise interest rates.

The Fed meets for two days in the week ahead, culminating with the interest rate decision Wednesday. It’s widely expected to keep rates the same for now while it signals the intent to raise rates once more before the year ends.

The high costs of Harvey and Irma won't be ignored by the central bank. That would be foolish. Even in the data-dependent world of fiscal policy making and its effort to remove emotion from economics, the toll of the storms will be felt — even if transitory.

Damage from the two storms is estimated at $150 billion to $200 billion, according to Moody’s Analytics. That’s the cost to property. Most of that will be picked up by insurers and by taxpayers through various assistance programs. But the cost to the economy is estimated to be another $30 billion. The lost productivity of the energy and chemical sectors in Texas and tourism in Florida, while hurting incoming data, it won’ be enough for the Fed to divert from its plans to raise rates once more this year.

On the flip side, rebuilding efforts will goose future economic data. But that spending spree, just like before the storms, is momentary. And basing its moves on momentary economic data is not how the Federal Reserve decides monetary policy.

This story was originally published September 15, 2017 at 7:00 AM with the headline "Storms won’t change Fed Reserve forecast."