Federal Reserve official says economic outlook uncertain in long term

A Federal Reserve executive believes the economic outlook is strong in the short term but uncertain in the long term.

"We'll have to do a lot of things differently to change that scenario," said Daniel L. Thornton, vice president and economic adviser at the Federal Reserve Bank of St. Louis. "It's not rosy."

During his presentation Thursday afternoon to members of the Cape West Rotary Club, Thornton talked about what caused the recession and what may happen.

Thornton said the main cause was the sudden boom in the housing market. Too many homes were sold at prices that continued to rise for years but then suddenly dropped, he said. The median price of a home in the U.S. jumped 13.6 percent in 2004 and 10 percent in 2005, according to the National Association of Realtors.

But the housing market began to slow in the first quarter of 2006. The median price of a home during the second quarter of this year was $174,100, a 15.6 percent decrease from the median price of $206,400 in the second quarter of 2008.

Thornton said the market won't recover quickly and that employment may not increase until March 2010. The national unemployment rate in September was 9.5 percent, up from 6.1 percent in September 2008.

"Even though the economy will improve in the short run, employment won't," Thornton said.

He said 20 percent of the $787 billion stimulus package has been spent in a time when Americans need a jump-start in the economy. He disagrees with the timing of the stimulus package.

"As the economy improves and gets stronger, that's when we'll really need to start spending the stimulus money," he said. "By the time we don't need it we'll begin to spend it. That will not make the problem any better."

Though the idea of a second stimulus package has been proposed by some government officials, Thornton opposed it.

"I don't believe the first stimulus package has had that strong of an effect," Thornton said. "Why do we need a second one? We need to wait until the first one goes into effect."

bblackwell@semissourian.com

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