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Fed says economy will get worse in 2009

Posted February 18, 2009
Updated March 9, 2009

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— The Federal Reserve warned Wednesday that the nation's crippled economy is even worse than thought and predicted it would deteriorate throughout 2009, with no sign that the housing market will stabilize.

Cary financial planner talks about economic forecast Cary financial planner talks about economic forecast

The Fed's bleak estimates indicated that unemployment could climb as high as 8.8 percent this year and that the economy would contract for a full calendar year for the first time since 1991.

Ken Bell, a financial planner with Aspera Financial in Cary, said that the Fed's predictions are overly optimistic

"It's more positive than mine. They've adjusted their forecast. Their forecast is more negative than it had been,” Bell said.

The Fed's latest forecast says the unemployment rate will climb to between 8.5 and 8.8 percent this year. The old prediction, issued in mid-November, estimated that the jobless rate would rise to between 7.1 and 7.6 percent.

Bell said it wouldn't surprise him to see the national unemployment rate reach 10 percent. He also said the worst housing, credit and financial crises since the 1930s has been building for years.

“We had done nothing but borrow and borrow and borrow and save nothing and that got to unprecedented levels. That's starting to unwind. That's healthy. We're going to have to pay for it for a number of years, but ultimately that's healthy,” Bell said.

The Federal Reserve's latest projections came hours after a separate report showed that new home construction and applications for future projects both fell to record lows last month.

Still, some economists saw a silver lining in the otherwise dismal housing report: Scaled-back building should reduce the number of unsold homes and contribute to an eventual housing recovery.

Small business owners are also hoping for some relief.

“Right now, we have our tops 20 percent off and typically for us our tops are big sellers. So rarely do we ever have to mark them down,” Julie Sezer, owner of Denim and Lace.

The upscale boutique opened three years ago in Cary. Sezer said sales were steady until six months ago.

“We're just going to be bringing in less merchandise, trying to be really sure about what we are bringing in. The things that have been tried and true for us,” Sezer said.

Employment is usually the last piece of the economy to heal once the country is out of recession and in recovery mode. Businesses are usually reluctant to ramp up hiring until they feel confident that any recovery has staying power.

Under the Fed's new projections, the economy should grow between 2.5 and 3.3 percent next year and by as much as 5 percent in 2011, which would be considered robust.

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  • affirmativediversity Feb 18, 2009

    An epiphany...that's what I just had...

    Do you want to know why people, like me, are like a bulldog with a blanket on this thing...

    Its because we are so fiscally responsible. The people who are being put on the hook for all this madness and spending spree and the same folks who...before they make any purchase that requires taking on debt...they FRET...they think about it...they want to know what plan B is...THEY ARE RESPONSIBLE AND DO NOT OVER EXTEND THEMSELVES...no matter how nice something might be to have...they stay within their means

    NOW...all that is being taken away...POOOFFFFF...all that concern and consideration...WORTHLESS...
    OBAMA is demanding we pay for thing for other people we wouldn't purchase for ourselves
    Obama's biggest problem....
    we're not likely to forget this mental torture any time soon...and we'll have the payments to reminds us!

  • Jimm57 Feb 18, 2009

    Where's all the great Obamma lovers now?

  • grimreaper Feb 18, 2009

    "That is quite convenient, but did anyone REALLY believe anything that was said over the last two years of campaigning??? Only if your ignorant. What is Obama's housing plan going to do for me? I pay my bills...I didn't overextend myself on a house that I couldn't afford...what is he doing for ME!!! Exactly as I suspected...NOTHING!!!"

    You are correct. Those who were played the system will come out of this with no debt and have an advantage down the road...those that were responsible and survive will still have their debt. Heck of a system.

  • grimreaper Feb 18, 2009

    I am sick of hearing about the "housing market". Who gives a rats backside about it anyway. Everyone knows it was inflated and ready to crash nation wide. It had already crashed in Boston and other large metro areas over 2 years ago.

    It will get worse. Once you lose your income stream why would you struggle to "make" a mortgage payment when you can just walk away. That's right...there is NO legal ramifications at all, none. The bank owns the house not you. You simply toss 'em the keys and trade that $1400 mortgage and all the insurance baggage etc for a nice cheapo $500 apartment.

    Sure, they will go on about your credit rating, blah, blah...yeah, whatever. That "great" credit rating got you jack spit for being responsible as they gave every joe blow the same interest rate as you. They forget that when millions of people all toss the keys at once things like credit ratings don't mean anything.

  • woodrowboyd2 Feb 18, 2009

    MILLIONS MORE WILL BE ASKING THE SAME QUESTIONS YOU PEOPLE ARE
    I DONT THINK THIS WAS THE CHANGE MOST EXPECTED BUT BY BEING NOT INTERESTED IN FOLLOWING THE PERSON THEY VOTED FOR THEY SHOULD NOT EXPECT MUCH MORE
    THIS IS NOW CHANGE THEY WILL BELIVE IN
    AND PAY FOR

  • west1117722 Feb 18, 2009

    the problem was these greedy as- banks trying to rip all this people off, they knew they couldnt afford them, and also a lot of foreclousers are happening now to people that are getting laid off, its haard to make house payments on unemployment

  • Inspired Feb 18, 2009

    Could the government please stop interfering and let the free market do its thing? Then we'll see improvement.

  • NZ Feb 18, 2009

    For the life of me, I don't understand why a PRIVATE BUSINESS like the Federal Reserve is allowed to hold sway over the economy of the United States.

    We need to end the control the Federal Reserve over the US.

  • Kingfish Feb 18, 2009

    That is quite convenient, but did anyone REALLY believe anything that was said over the last two years of campaigning??? Only if your ignorant. What is Obama's housing plan going to do for me? I pay my bills...I didn't overextend myself on a house that I couldn't afford...what is he doing for ME!!! Exactly as I suspected...NOTHING!!!

  • affirmativediversity Feb 18, 2009

    For 787 BILLION we should be able to DEMAND INSTANT IMPROVEMENT!!!

    We could have got DELAYED STIMULUS a whole lot cheaper!!!

    Like I said before, how convenient that NOW we are all told to be "patient" and not expect improvement!