WASHINGTON – As estimates of Hurricane Katrina’s carnage grow by the day, the storm’s potential damage to the U.S. economy also is mounting, amid surging gasoline prices and disruptions to shipments of key agricultural products.
President Bush and Federal Reserve Chairman Alan Greenspan met Thursday to discuss Katrina’s economic effect as the central bank chief came under increasing pressure to scrap or delay further Fed interest rate increases.
Experts warned that fuel prices, driven higher because of storm-related damage to the Gulf Coast’s energy infrastructure, may be approaching levels that will slow economic growth.
High gasoline costs and accusations of gouging amid prices as high as $5 a gallon also appeared to be fueling a consumer backlash.
The national economy also may be hurt by storm-related damage to ports in New Orleans and the Gulf Coast, which are among the nation’s largest. The United States is the world’s biggest agricultural exporter. Most of what’s exported floats down the Mississippi River on barges and then is transferred to ships at one of the Louisiana ports. Many fully loaded barges are now drifting, with nowhere to go.
Although economists generally aren’t predicting a recession, many have lowered their estimates for economic growth, partly because of Katrina. Experts who previously predicted that growth in the current quarter would exceed an annualized rate of 4 percent now expect the pace to fall below 3.5 percent. Others say growth could fall below 3 percent. The economy expanded by 3.3 percent in the April-June quarter.
“What Katrina has done is shift the economic focus from inflation to growth,” said Denver economic consultant and veteran Fed watcher David Jones. “I think what you’ll see is the Fed pausing at its next meeting, citing special circumstances.”
After a lunch with Greenspan that White House aides said was arranged to “focus on the economic impact” of the storm, Bush warned of temporary gas shortages in the coming weeks and called on Americans to conserve energy.
“Don’t buy gas if you don’t need it,” the president said at a White House appearance.
With eight major refineries incapacitated, Bush said “it’s going to be hard to get gasoline to some markets.” He did not elaborate, but oil industry experts said the Midwest, the South and the Atlantic states could probably experience shortages.
The crisis has hit the airlines particularly hard, with a surge in jet fuel prices and the loss of passenger traffic in the Gulf Coast region. Delta Air Lines and Northwest Airlines already are close to filing for bankruptcy protection, and Northwest said that it now has even less time to slash costs and avoid a filing.
Concerned about a possible economic slowdown triggered by high energy costs, investors drove down bond interest rates this week. That represents a huge bet that the Federal Reserve’s rate-raising days are coming to a swift close as a result of the storm.
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