SF Fed President talks economy

May 27, 2008 7:43:21 PM PDT
As bad as it may seem with gas prices, we may not have seen the worst of it yet. High gas prices are largely to blame for a big drop in the new consumer confidence reading, down for the fifth consecutive month, and now at the lowest level in almost 16 years.

Then, there's the real estate market, the weakest pace of new home sales in 17 years. Prices show the sharpest decline in two decades, down 14 percent.

The head of San Francisco's Federal Reserve Bank offered a tepid, but generally positive outlook for the rest of the year. It was an audience anxious to hear the state of the economy. The speaker was San Francisco Federal Reserve Bank President, Janet Yellen. Her audience was financial planners from all over Northern California, who are hungry to feed their clients any indicators how the economy is faring.

"Most people are pretty impatient in this information age. People think we can just send out checks and fix the economy," says Eric Flett of Concentric Wealth Management.

The message from Dr. Yellen was patience.

"I think we've been through a huge financial shock, and it's taking its toll, and it's going to take time for things to regenerate and restore and get back to a normal situation," says Yellen.

Dr. Yellen said the housing market remains the most pressing concern, with falling home prices not expected to bottom out until next year.

That puts a damper on consumer spending, which slowed to one percent in the first quarter of 2008, versus 2.5 percent a year ago. The sharp rise in food and oil prices is also eroding consumer confidence.

"They're an enormous drag on households in terms of just like a tax on them, and it's impairing their well being and ability to spend, and it's an inflation concern, too," says Yellen.

The result is caution among some consumers, but not all.

"I think it's in the back of my mind when I spend, but I still feel very confident being here in San Francisco that we'll be ok," says Union Square shopper Kattya Breitenbach.

Sometimes it takes an overseas visitor to notice belt-tightening by American consumers.

"Most shows here on TV are all about how to save money. You don't get that back in Australia," says Australian visitor Andrew Burgess.

Dr. Yellen sees exports giving the U.S. economy a boost, but there could be trouble on the horizon.

English truck drivers in London protested when diesel fuel reached $9.00 a gallon, evidence that soaring oil prices are a global threat.


Load Comments