INSIDE FINANCE
"The Katrina Effect" - Boom or Bust?

By Robert M. Jaffe, MBA, AAMS
September 23, 2005

In my last column, I indicated my personal feelings about the manner in which the federal, state and local governments responded to the severity of the storm and its immediate aftermath on our fellow citizens of the Gulf Coast. In the week and a half that has passed at this writing, my opinion hasn't changed and, I believe, has been validated by further events at all three governmental levels. However, this is a financial column, so here's a stab at what I see forthcoming in the near-term après Katrina. Even though we have felt the initial awful bite at the gasoline pump, pipeline capacity in the Gulf is increasing and prices are already dropping.

How will Hurricane Katrina influence interest rates? My sense is it will not. By the time this goes to press, the Fed will have met and at the Federal Reserve Open Market Committee meeting on September 20 and made its decision as to whether to pause or continue to raise interest rates. One school of thought opines that the Fed will halt the rate climb due to the tremendous loss of jobs and property the nation has suffered. I side with the "wait and see" philosophy and that the November meeting may prove to be the time for a change. The Fed has raised the fed funds rate from 1 percent in the spring of 2004 to the current 3.5 percent. After all, the Fed's focus is on inflation. Their target was to reach 3.75-4.00 percent, and we're nearly there.

Rebuilding New Orleans and other gulf coast communities will take plenty of work creating new jobs and much needed construction. If supplies are initially short, there will be a tight market and prices will rise, hence a valid reason for the Fed to continue its anti-inflationary policy. We won't know the full effect of this disaster on the nation's economy for some time to come, but I envision not a bust, but a boom in that disaster-torn region.

Please Email bob@cfsias.com with your questions.

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INSIDE FINANCE will appear regularly, addressing financial matters of interest to our readers. Any questions? Email bob@cfsias.com

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member NASD/SIPC. Cambridge and CFS are not affiliated.

The preceding article is for informational purposes only and should not be used as the primary basis for an investment decision. Indices mentioned are unmanaged and cannot be invested into directly. Past performance does not guarantee future results. All examples given are hypothetical and do not reflect actual investments. The views expressed in this article are those of the author and are not necessarily those of Cambridge. Bob Jaffe is Managing Director of CFS Investment Advisory Services, LLC in Totowa and has been a Clifton resident since 1984. Active in community affairs, Bob is Past Board Chairman of the North Jersey Regional Chamber of Commerce and a member of its foundation board. He serves as a commissioner on the Clifton Rent Leveling Board and the Committee for Individuals with Disabilities. He is Vice President of the Clifton Rotary Club. Representatives of Cambridge do not offer tax or legal advice. Consult a professional for your personal situation.