Hurricane Katrina Puts More Pressure ForHigher Rates

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WASHINGTON - (09/20/05) -- Any doubt that the Federal Reservewill continue its push for higher interest rates was erased by theaftereffects of Hurricane Katrina, which is expected to result in amassive flow of government spending, according to market observers.As a result, the Fed is widely expected to push up short-term ratesagain Tuesday by another 25 basis points, or more. "The Fed isgoing to continue to increase by 25 basis-points," said Tun Wai,chief economist for NAFCU. He said the massive new spendinginitiatives are going to add inflationary pressures on the U.S.economy in the foreseeable future. Congress is discussing a massiveeconomic stimulus package, as much as $200 billion, to rebuild inthe Gulf States after Hurricane Katrina. Going forward, the NAFCUeconomist expects a continued effort by the Fed to raise theovernight Fed Funds rate from the current 3.50%, probably at themeeting of the Fed's Open Market Committee in November andDecember. "The only issue is whether the post-Katrina growth datawill make them pause," Wai told The Credit Union Journal. NAFCU'steam of economists predicted that economic growth will slow for thethird quarter, and for the fourth quarter, as a result of HurricaneKatrina.

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