KC Fed chief says recovery possible in late 2009

KANSAS CITY, Mo. -- The economy won't begin recovering until the second half of next year at the earliest and that will depend on what form president-elect Barack Obama's economic stimulus package takes, the president of the Federal Reserve Bank of Kansas City said Monday.

Speaking to a group of newspaper publishers from Missouri and Kansas, Thomas Hoenig said Obama's plan must reassure consumers that the economy is stabilizing so personal income levels rise and businesses feel confident enough to begin investing again.

"There is a lot resting with this new administration," Hoenig said, noting the economy has continued to fail despite the government providing $700 million in liquidity. "Confidence is everything. A lot of that is laying there and not being used at this point as people wait and see."

Obama has said he wants to revive the economy and create jobs through massive investment in public infrastructure, including highways, schools and energy efficiency projects. He hasn't offered a price tag for the package, how the money would be divided or what effect such a spending program would have on the economy.

But Hoenig said such a program, planned and executed wisely, could have more benefits than simply handing consumers a rebate check, as was attempted by President Bush earlier this year.

"The tax rebate was very strong, but very temporary," Hoenig said. "We're looking for a longer kind of solution with a greater multiplier effect in terms of investment for the economy."

Hoenig cautioned that more bank failures or other problems in the financial sector could delay recovery further. He also said policymakers will eventually have to withdraw the government-sponsored liquidity during the recovery before it ignites inflation.