We have been in contact with many depository institutions in the affected [Gulf] areas and are carefully monitoring the situation. At this time, we have not seen evidence of significant funding difficulties or problems in balance-sheet management.

At this point, the banking industry on the whole has shown resilience and flexibility in its response to [Hurricane Katrina]. While the challenges have by no means passed, banks appear to be taking the appropriate actions to provide their customers with access to much-needed cash and banking services.

Before Katrina, the national economy was in pretty good shape, with most signs pointing to fairly strong growth. GDP had expanded by 3 percent or better for nine straight quarters. Aside from manufacturing, the job situation also looked bright...[And] despite rising prices for oil, natural gas and other energy supplies, inflation remained relatively tame...How does Katrina alter the outlook? The truth is, we do not really know.

When it comes to Katrina and the U.S. economy, my inclination is to read, listen and watch and not rush to judgment about how the disaster will impact the economy or how monetary policy ought to respond...We have a huge economy...While Katrina’s damage to Louisiana, Mississippi and Alabama is massive, the first-tier macroeconomic hit to the overall economy will be less so. We have all heard some projections for Katrina’s impact on GDP and unemployment, but I hesitate to endorse any numbers. Early estimates are notoriously unreliable.

While uncertainty surrounds Katrina’s effects on economic growth and core inflation, one thing is clear: Congress and the executive branch are acting swiftly to provide emergency funding for the affected areas. So far, the federal government has authorized more than $62 billion for recovery efforts. I have asked my staff to carefully monitor this spending. Obviously, the political authorities, not the Federal Reserve, have the power of the purse. I pray they act wisely. With the nation’s already large fiscal deficits, I personally believe it would be ill-advised for the Fed to monetize any fiscal profligacy.

Among the American economy’s strengths are its size, diversity, interconnections and resiliency. I fully expect the economy to rebound from this disaster.

With a disaster of this magnitude...there are national implications, since that region is an important hub for exports and imports and an important center for the oil and gas industries.

As for the impact of the situation in the Gulf Coast on policy...In my view, the greatest contribution monetary policy can make is to keep the national economy on an even keel. Monetary policy, unfortunately, has little scope to cushion the immediate economic fallout from such a severe and sudden blow to a region...It is fiscal policy—government spending and transfers—that is necessary to address the immediate needs of the affected areas.

Disruption of production in the Gulf will undoubtedly slow growth somewhat in the second half—a common estimate is that it will depress national real GDP growth by around one-half to three-quarters percent. This is likely to be followed by a surge in growth as the government-assisted rebuilding kicks in—hopefully before too long.

Supply disruptions emanating from the Gulf Coast disaster may...affect the prices of building materials and transportation services.

My overall assessment is that core inflation—that is, excluding food and energy—seems relatively well contained at the present time. However, there are a myriad of uncertainties about how things will unfold over the next year or two, and the uncertainties on the upside have only gotten bigger since Hurricane Katrina slammed into the Gulf Coast.

The tragic disaster in the Gulf region tops the list of risks to the national economy at this stage, given the importance of this area to energy, trade, and transportation.

The events unfolding in Louisiana and Mississippi add more than the usual amount of uncertainty to our economic environment.

The aftermath of Hurricane Katrina has accentuated the concerns already in the market place and caused a further escalation in oil prices today. There is little doubt that the weather damage to our oil industry could be substantial and dislocations are likely in the short run.

The effects of Katrina are likely to slow but not stall the forward progress of the national economy. Of course, we must all wait to see the damage that Mother Nature has caused, but for the moment I am hopeful that the damage done to the national economy will be neither substantial nor very long lived.