Yellen, Janet

Signs point to another robust performance in the fourth quarter, so growth for the last half of 2005 could well come in noticeably above the potential rate.  This positive performance suggests that the overall economy has been quite resilient in absorbing the impact of the storms [Hurricanes Katrina and Rita].  For 2006, it seems likely that this strength will continue in the first half, as rebuilding kicks in.  Then, in the second half, a couple of factors are likely to cause economic growth to settle into a trend-like pattern.  One of the factors is the winding down of the rebuilding effort.  The other is the lagged effect of monetary policy tightening; in other words tighter financial conditions will have some dampening impact on interest-sensitive sectors, such as consumer durables and housing.