A Federal Reserve economist sees job growth, housing starting to stabilize. in Sacramento Region

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Area earns a bullish forecast
A Federal Reserve economist sees job growth, housing starting to stabilize.
By Dale Kasler - Bee Staff Writer
Published 12:00 am PST Saturday, February 24, 2007

The economy is bearing up well, in Sacramento and across the country, despite the weakened housing market, a Federal Reserve economist said Friday.

Janet Yellen, president of the San Francisco Federal Reserve Bank, said the nation's economy appears on track for a "soft landing" with moderate growth and inflation.

Sacramento, even though it's faced some of the worst of the nation's housing slump, continues to generate decent job growth, she said.

The "overall health of the local economy," including renewed hiring by state government, should help Sacramento avoid a repeat of the significant recession that engulfed the area in the early 1990s, Yellen said during a speech at California State University, Sacramento.

"While the pace of employment growth slowed last year in the Sacramento area, as it did in the rest of the state, the state government's fiscal situation has improved over the past few years, and that's helped create new jobs locally and keep the area economy on a stable expansion path," Yellen said.

She added that "there are signs of stabilization" in the Sacramento housing market.

DataQuick Information Systems, which tracks the housing industry, reported recently that while sales activity in Sacramento is still in a slump, the decline in prices has slowed.

As for the national economy, Yellen said the Fed continues to strike a balance between keeping the economy growing at a decent pace without igniting inflation. The housing market, plus slumping sales of U.S.-made autos, has taken a bite out of growth but not enough to put a serious dent in the economy, she said.

"Outside of housing and domestic autos, I think the rest of the economy has been doing quite well," she said. "The economy is pretty close to the glide path ... toward a soft landing."

Although inflation over the past year has been "higher than I want it to be," she said it has moderated in recent months.

The January inflation numbers were higher than analysts expected, but Yellen said she doesn't worry too much about a one-month fluctuation.

The Fed last August halted its two-year streak of raising interest rates, reasoning that it had engineered a desired slowdown in the economy. Yellen said she supports the Fed's current policy of keeping rates stable -- but with a "bias" toward tightening monetary policy further in case inflation worsens.

Asked if the Fed should go ahead and raise interest rates to forestall inflation, she said the prospect of choking off economic growth too severely is "a risk we should not take."

Yellen is not a voting member this year of the Fed's Open Market Committee, which is the Fed's main rate-setting arm. A former chair of the Council of Economic Advisers under President Clinton, she has led the San Francisco Fed since 2004. She is a professor emeritus at the University of California, Berkeley.

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