=DJ Dallas Fed Paper Says Sept 11 Won't Have Big 2002 Impact
Dow Jones Newswires
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NEW YORK (Dow Jones)--The Sept. 11 terrorist attacks have taken a clear bite out of growth in the final months of this year, according to soon-to-be published Federal Reserve Bank of Dallas research paper.
But it is likely to be a short-term hit.
"The already bleak growth outlook for the first half of 2002 hasn't really changed very much...We're likely to see output rising, but too slowly to prevent further increases in the unemployment rate," wrote senior economist Evan Koenig, in the November/December issue of the bank's Southwest Economy.
The Dallas Fed said timing is the key to understanding the impact of the Sept. 11 events. Because they took place so close to the end of the third quarter, the effect on that period's performance was relatively contained.
The attacks likely subtracted one percentage point from the 0.4% decline in third quarter gross domestic product, Koenig wrote. That number is set to be revised Friday, economist expect a -0.8% GDP.
"Spill over from the attacks makes a much more significant GDP decline likely in the current quarter," the paper said. They are likely to have trimmed 3.5 percentage points from the fourth quarter GDP data, and that explains why so many private forecasters foresee another contracting quarter, rather than an expansionary one, the paper said.
Heading into 2002, the Dallas Fed researcher found that the unemployment rate should likely move to around 6% by June, even as GDP readings during that period cling to positive territory.
Koenig acknowledges that there are significant risks to next year's growth forecast. They come from the possibility of more terrorist attacks, or from the possibility the Fed could get "behind the curve." That is, lower interest rates won't keep up with declining inflation expectations.
The paper also tackles questions of monetary policy's ability to steer the economy. It concludes that based on inflation statistics over the past several years, "policy was basically on the right tack" and the controversial rate hikes of 1999 and early 2000.
And after the current year's aggressive easings, "policy has proven itself to be effective," and with the help of fiscal stimulus, "brighter days lie ahead," Koenig wrote.
-Michael S. Derby, Dow Jones Newswires; 201-938-4192; michael.derby@dowjones.com
(END) Dow Jones Newswires 29-11-01
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