As yet another hurricane rips through the Caribbean, the Federal Reserve on Wednesday said two of its nastiest predecessors, Harvey and Irma, will have little long-lasting economic effects.

The central bank, after a two-day policymaking meeting, noted the harm Harvey and Irma caused but said it’s unlikely to be long-lasting. In fact, the Fed actually raised its projection for economic growth and lowered its outlook for the unemployment rate.

“Hurricanes Harvey, Irma and Maria have devastated many communities, inflicting severe hardship,” the post-meeting statement said. “Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term.”

New York Fed President William Dudley recently suggested that the ultimate impact of the storms actually could be a modest boost to the economy due to rebuilding activity. The “broken windows” economic theory has its detractors, but Dudley is not alone in suggesting that storm rebuilding results in some growth.

The Fed said that it still expects the economy to grow at “a moderate pace” while the employment picture “will strengthen somewhat further.”

Higher gasoline prices in the storms’ aftermath will boost inflation “temporarily,” but apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term.” That 2 percent level is critical as it represents the long-term Fed target for inflation.

In its quarterly economic projections, the Fed raised its GDP outlook for 2017 from 2.1 percent to 2.2 percent.

In addition, the central bank now sees the unemployment rate stabilizing at 4.1 percent in 2018 and 2019, down from the 4.2 percent projection in September.

The Fed also described household spending as expanding at a moderate pace while business investment “has picked up in recent quarters.”

Despite its otherwise upbeat economic outlook, the Fed decided not to increase its benchmark interest rate.

Source: cnbc economy
Fed says Harvey and Irma will have no lasting economic impact