The president of the New York Federal Bank is convinced Hurricanes Harvey and Irma actually will lead to increased economic activity over the long run.
Speaking just as Irma is about to start battering Florida as a Category 4 storm, William Dudley told the media the initial impact in both human and economic costs will be harmful. But in the long run, economies tend to snap back from such major events, given as communities lift their economies and their surroundings by rebuilding what was broken.
Dudley added that he didn't think the near-term economic damage would have much effect on Fed policy. He still believes the central bank will begin unwinding its $4.5-trillion balance sheet "relatively soon" though he acknowledged that the timing of the next rate hike is up in the air.
In their most recent projections, Fed officials indicated one more rate hike this year on top of the two they already approved earlier. However, weak inflation data have led to dovish statements from Fed speakers, leading market participants to believe the next hike won't happen until well into 2018.
The New York Fed's gross domestic product model is projecting 2.2% growth for the second quarter, a good deal below where many on Wall Street expect. However, Dudley said he is optimistic that the economy can grow slightly above the 2% recovery trend, thanks in part to coordinated growth around the world.
That even comes with the impact of the Harvey and Irma, which he believes will contribute to growth in subsequent quarters.
