Hurricanes upend lives. They become demarcations for millions of people — life before the storm and after. Harvey and Irma have done that. But don’t expect the storms to change the Federal Reserve’s plans for raising interest rates.
The Fed meets for two days in the week ahead culminating with an interest rate decision Wednesday. The central bank is widely expected to keep rates the same for now while signaling its 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 policymaking, where emotion is removed from economics, the toll of the storms will be felt — even if it’s 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, won’t 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 momentary economic data is not what the Federal Reserve uses to decide monetary policy.
