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Sandy an 'Enormous Hit' to Economy: Ex-Fed Official

Javier E. David
Thursday, 1 Nov 2012 | 4:07 PM ET

A U.S. economy already hampered by the possibility of deep fiscal retrenchment must now grapple with the "enormous hit" of Hurricane Sandy, a top Wall Street economist said Wednesday.

Stan Honda | AFP | Getty Images

New York City and swaths of New Jersey – among the Northeast's most hardest-hit areas – are just starting to dig out from the gigantic weather system that left dozens dead. But Vincent Reinhart, chief US economist at Morgan Stanley, predicted the impact on the entire U.S. economy was likely to linger.

"If you are going to talk about the economy, the first thing to recognize is that this is an enormous hit to our wealth," said Reinhart, a former Federal Reserve economist. "The storm destroyed significant capital and infrastructure in areas, and that'll leave an imprint on activity for a bit to come."

Estimates of the economic blow dealt by Sandy range anywhere from $20 billion to as high as $50 billion – which would make it one of the costliest storms in U.S. history (Read more: Sandy's Economic Cost: Up to $50 Billion and Counting.)

Fiscal Cliff & Election
Vincent Reinhart, Morgan Stanley, explains whether Sandy will derail the economy.

However, the economist stopped short of saying the storm could tip the U.S. economy into recession. He said that economic activity could be given a delayed ballast, as rebuilding efforts and deferred purchases translate into more consumer spending.

"If you decided to buy a refrigerator, then you won't buy it this week, you'll by it next week or the week after," Reinhart said. "Rebuilding will help in the first half of next year, but for now we've got to get past the event itself."

Still, the economy is already being weighed down by the possibility of a mix of public spending cuts and tax hikes known as the "fiscal cliff." That is already leading to slower economic growth, Reinhart said.

"Any way you slice it there is going to be some fiscal consolidation in the first half of next year," he said.

Although Washington may find a temporary solution to the problem, Reinhart warned it could come later than some people think.

"There probably will be a patch, politicians always do something at the last minute," he said. "The problem is the fiscal cliff really isn't a cliff, it could be a shallow incline and the last minute could be as late as February."

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