Hurricane Katrina (search) will hurt the U.S. economy in the short term, but bright long-run prospects mean the Bush administration can push ahead with its reform agenda, White House economic adviser Ben Bernanke (search) said Thursday.

"In the shorter term, the devastation wrought by Hurricane Katrina will have a palpable effect on the national economy," Bernanke said in prepared remarks for delivery at the National Press Club. But he also said the private sector forecast healthy long-run growth.

Congress has already approved $62.3 billion in emergency aid but the final bill is expected to be much higher. Bernanke said the budget deficit would rise in the short term as a result. But he stressed that as much of the money as possible should be offset through future spending cuts.

"What we need to do is consider the President's budget proposal and be more aggressive in cutting duplicative or unnecessary programs," he told reporters after the speech.

In a prime-time speech on Thursday night in New Orleans, President Bush is expected to outline several new initiatives focused on helping those displaced by the hurricane, such as job training, help for small businesses and housing assistance.

Bernanke, a former Federal Reserve (search) governor who is regularly mentioned as a potential successor to Federal Reserve Chairman Alan Greenspan (search), offered no estimate of how much growth he thought might be erased by the storm, which killed over 700 people in the U.S. Gulf Coast region and displaced an estimated 1 million people in Louisiana, Mississippi and Alabama.

"In particular, the virtual shutting down of the Gulf Coast economy will leave its imprint on the national rates of job creation and output growth, especially in the third quarter," he said. But rebuilding of the area should add to growth "perhaps by the fourth quarter and certainly in the first half of next year."

He said that while energy refining and distribution facilities were hard-hit, progress was being made on repairing them while supplies from the government's Strategic Petroleum Reserve were easing the pinch.

"Consequently, near-horizon futures prices for oil and gasoline have already begun to moderate substantially, and retail prices should follow them down very soon," he said.

U.S. consumers have been hit by soaring prices at the gasoline pumps, raising worry that they might cut back on other spending and thereby remove some stimulus from economic activity.

Bernanke said the White House intends to continue pursuing policies that make the economy able to withstand shocks and that will keep growth on track.

"These policies include making tax relief permanent, reducing the budget deficit by limiting spending, strengthening retirement and health security through efforts like Social Security reform ... and enhancing energy security," he said.

White House officials have previously acknowledged that action of some of those items might be delayed as Congress focuses in coming weeks on the storm's aftermath.