FWIW

Katrina Doesn't Change Economists' View on Rates, Survey Shows

Sept. 16 (Bloomberg) -- Hurricane Katrina has done little to change expectations among economists for further interest-rate increases, according to a survey that also identified energy costs as the biggest threat to the U.S. economy.
Ninety percent of economists surveyed by the National Association for Business Economics said they expect the Federal Reserve to raise borrowing costs more. Among those surveyed after Katrina, 84 percent predicted increases, compared with 97 percent among those who responded before the storm.
The proportion of respondents citing energy costs as the biggest threat to the economy in the next two years rose to 30 percent from 11 percent in a March survey. Gasoline prices have risen to a record since Katrina crippled Gulf Coast refineries, leaving consumers less money to spend on other goods.
``Economists believe energy prices are becoming a more severe short-term risk,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. ``Over time, you are crimping the discretionary spending of a lot of consumers.''
Terrorism was cited as the top risk by 20 percent of economists, followed by the federal budget deficit at 13 percent. The poll of 202 economists was taken from Aug. 17 to Sept. 7, with 56 percent responding after Katrina struck on Aug. 29.
Lawmakers such as Republican Senators Charles Grassley and Orrin Hatch have said the Fed should refrain from raising rates when shelters are filled with evacuees.
Federal Reserve policy makers raised their benchmark U.S. interest rate for a 10th straight time last month, by a quarter- point to 3.5 percent, and repeated a plan to carry out further increases at a ``measured'' pace.
The Fed's Open Market Committee meets next on rate policy on Sept. 20 and has two more meetings scheduled before year-end.
Crude Oil
``While the economy took a negative hit from Katrina, it was not so severe to threaten the overall recovery,'' Silvia said. The Fed's ``emphasis on inflation risks is pretty clear.''
Sixty-five percent of economists in the survey said they viewed monetary policy as ``about right,'' 30 percent as ``too stimulative,'' and 5 percent ``too restrictive.''
Crude oil futures traded at a record $70.85 a barrel Aug. 30 on the New York Mercantile Exchange. The price of regular-grade gasoline rose to an all-time high of $3.057 a gallon on Sept. 2, according to the AAA, the nation's largest motoring organization.
Most Americans expect to be hurt financially by Katrina, the nation's worst natural disaster, according to a CNN/USA Today/Gallup survey released on Sept. 13. Forty-three percent expect to be hurt ``a lot'' and 37 percent ``a little,'' according to the poll of more than 1,000 people taken Sept. 8-11.
Long-Term Outlook
The number of economists concerned by energy prices has risen for each of the past five NABE surveys over two years.
For the longer term, only 4 percent of economists surveyed by NABE cited energy prices as the greatest problem. They were split almost evenly: 23 cited health-care costs, 22 percent the federal deficit and government spending, and 21 percent inadequate education and a shortage of skilled labor.
Most economists also expected continued gains in housing prices. Fourteen percent said there is a national housing ``bubble,'' and 79 percent said there are local ``bubbles.'' Fifty-five percent expect continued price gains nationally over the next five years, while 16 percent predicted declines.
Eighty-three percent said they would buy a primary residence today. Just 17 percent said they would also buy an investment property.
``The economics profession is telling you in their opinion there are a lot of markets out of line with fundamentals, but the national market doesn't appear that way,'' Silvia said. To contact the reporter on this story:
Steve Matthews in Atlanta at smatthews@bloomberg.net