BCA Research suggests that the fallout from Hurricane Katrina could persuade the U.S. Federal Reserve Board to refrain from raising rates when it meets on September 20.

“The spike in gasoline prices and the massive economic damage from this week’s hurricane create downside risks for the U.S. growth outlook in the near term that warrant the Fed pausing in its measured tightening process,” BCA says in a new research note.

“Yesterday’s benign core inflation indicates that the Fed has latitude in deferring its next rate hike without jeopardizing its longer-term objectives,” BCA adds. “Moreover, Greenspan’s risk-management approach and political savvy suggest he will err on the side of caution until the outlook becomes clearer.”

“Much depends on how the energy and financial markets respond in the next three weeks, but the odds increasingly favor the Fed keeping rates steady at its next meeting,” the firm concludes.