U.S. Treasury Secretary John Snow told Bloomberg Television Friday that U.S. economic growth would probably dip by closer to 1/2 percentage point in the second half of this year because of the Hurricane Katrina.
Responding to a question on the accuracy of the Congressional Budget Office's estimate that Katrina would cut near-term gross domestic product growth by 1 percentage point, Snow said he reckoned that estimate was too high.
"I think it's probably on the high side. I've seen other estimates more in line with a half-percent hurt to GDP growth in the third quarter and fourth quarter -- but with a pick-up of roughly that order for '06," Snow said.
Snow was traveling Friday with Commerce Secretary Carlos Gutierrez, Labor Secretary Elaine Chao and Social Security Commissioner Jo Anne Barnhart to Houston, Baton Rouge, La., and Mobile, Ala. to assess near- and long-term economic needs in the Gulf Coast region.
While stressing that underlying U.S. economic strength means the effects of the devastating storm would probably be temporary, he did say: "We'll see somewhat slower growth and we'll probably see somewhat higher inflation rates."
Concern over inflation is now focused on energy prices, with many worried that the longer oil prices remain elevated, the more likely it is that they will find their way into the core inflation rate, which excludes energy.
Oil prices have been steadily moving up in the last year amid strong demand and relatively inelastic supply, and they spiked after Katrina destroyed or damaged many U.S. energy industry assets in and around the Gulf of Mexico last week.
Snow said high energy prices, which many also fear will cut discretionary spending and hurt economic growth, are likely to stay elevated, even though they have fallen a bit since the immediate aftermath of the storm.
"I think energy prices will undoubtedly stay elevated because of the underlying basic demand and supply," Snow said.
The U.S. government has already invested in excess of $60 billion since the vastness of Katrina's destruction became clear, but Snow said he thinks the United States can afford the costs, without the Congress passing a specific Katrina-related economic stimulus package.
"Yes we can afford it. Of course we can afford it. America is the wealthiest country in the world," he said.